area handbook series 

Panama 

a country study 



"~1 



Panama 

a country study 



Federal Research Division 
Library of Congress 
Edited by 
Sandra W. Meditz 
and 

Dennis M. Hanratty 
Research Completed 
December 1987 



On the cover: Cuna Indian mola design of a man gathering 
coconuts 



Fourth Edition, 1989; First Printing, 1989. 

Copyright ®1989 United States Government as represented by 
the Secretary of the Army. All rights reserved. 

Library of Congress Cataloging-in-Publication Data 

Panama: a country study. 

(Area handbook series) (DA Pam 550-46) 
Supt. of Docs, no.: D 101.22:550-46/987 
"Research completed December 1987" 
Bibliography: pp. 295-311. 
Includes index. 

1. Panama. I. Meditz, Sandra W., 1950- . II. Hanratty, 
Dennis M., 1950- . III. Library of Congress. Federal Research 
Division. IV. Series. V. Series: DA Pam 550-46. 
F1563.P323 1989 972.87 88-600486 



Headquarters, Department of the Army 
DA Pam 550-46 



For sale by the Superintendent of Documents, U.S. Government Printing Office 
Washington, D.C. 20402 



Foreword 



This volume is one in a continuing series of books now being 
prepared by the Federal Research Division of the Library of Con- 
gress under the Country Studies — Area Handbook Program. The 
last page of this book lists the other published studies. 

Most books in the series deal with a particular foreign country, 
describing and analyzing its political, economic, social, and national 
security systems and institutions, and examining the interrelation- 
ships of those systems and the ways they are shaped by cultural 
factors. Each study is written by a multidisciplinary team of social 
scientists. The authors seek to provide a basic understanding of 
the observed society, striving for a dynamic rather than a static 
portrayal. Particular attention is devoted to the people who make 
up the society, their origins, dominant beliefs and values, their com- 
mon interests and the issues on which they are divided, the nature 
and extent of their involvement with national institutions, and their 
attitudes toward each other and toward their social system and 
political order. 

The books represent the analysis of the authors and should not 
be construed as an expression of an official United States govern- 
ment position, policy, or decision. The authors have sought to 
adhere to accepted standards of scholarly objectivity. Corrections, 
additions, and suggestions for changes from readers will be wel- 
comed for use in future editions. 

Louis R. Mortimer 
Acting Chief 

Federal Research Division 
Library of Congress 
Washington, D.C. 20540 



111 



1 1 



Acknowledgments 



The authors wish to acknowledge the contributions of the fol- 
lowing individuals who, under the chairmanship of Richard F. 
Nyrop, wrote the 1980 edition of Panama: A Country Study. The 
authors of the 1980 edition were as follows: Jan Knippers Black, 
"Historical Setting"; Richard F. Nyrop, "The Society and Its 
Environment"; Darrel R. Eglin, "The Economy"; James D. 
Rudolph, "Government and Politics"; and Eugene K. Keefe, 
"National Security." Their work provided the organization and 
structure of much of the present volume, as well as substantial por- 
tions of the text. 

The authors are grateful to individuals in various agencies of 
the United States government and in international and private 
institutions who gave of their time, research materials, and spe- 
cial knowledge to provide information and perspective. Officials 
at the World Bank were especially helpful in providing economic 
data. Similarly, officials of the United States Department of 
Defense, both in Washington and Panama, supplied up-to-date 
information on Panama's defense forces. 

The authors also wish to thank those who contributed directly 
to the preparation of the manuscript. These include Richard F. 
Nyrop, who reviewed all drafts and served as liaison with the spon- 
soring agency; Barbara Auerbach, Ruth Nieland, Michael 
Pleasants, and Gage Ricard, who edited the chapters; Martha E. 
Hopkins, who managed editing and book production; and Barbara 
Edgerton, Janie L. Gilchrist, Monica Shimmin, and Izella Watson, 
who did the word processing. Catherine Schwartzstein performed 
the final prepublication editorial review, and Amy Bodnar, of Com- 
municators Connections, compiled the index. Diann Johnson of 
the Library of Congress Printing and Processing Section performed 
phototypesetting, under the supervision of Peggy Pixley. 

David P. Cabitto, who was assisted by Sandra K. Cotugno and 
Kimberly A. Lord, provided invaluable graphics support. Susan 
M. Lender reviewed the map drafts, which were prepared by 
Harriett R. Blood, Kimberly A. Lord, and Greenhorne and 
O'Mara, Inc. Paulette Marshall of the Library of Congress deserves 
special thanks for designing the illustrations for the book's cover 
and the title page of each chapter. 

The authors also would like to thank several individuals who 
provided research support. Sisto Flores supplied information on 



v 



ranks and insignia, Joan C. Barch wrote the section on geography 
in Chapter 2, and Richard A. Haggerty supplied a variety of infor- 
mation for inclusion in both the text and the bibliography. 

Finally, the authors acknowledge the generosity of the individuals 
and public and private agencies who allowed their photographs to 
be used in this study. We are indebted especially to those who con- 
tributed original work not previously published. 



vi 



Contents 



Page 

Foreword Lii 

Acknowledgments v 

Preface xiii 

Country Profile XV 

Introduction xxiii 

Chapter 1. Historical Setting 1 

Jan Knippers Black and Edmundo Flores 

THE CONQUEST 6 

THE SPANISH COLONY 10 

THE COLOMBIA DEPARTMENT 14 

Independence from Spain 14 

The California Gold Rush and the Railroad 18 

The Uncompleted French Canal 19 

The Spillover from Colombia's Civil Strife 20 

THE UNITED STATES PROTECTORATE 22 

The 1903 Treaty and Qualified Independence 22 

Organizing the New Republic 24 

Building the Canal 25 

United States Intervention and Strained Relations ... 27 

A New Accommodation 29 

THE BISECTED REPUBLIC 32 

The War Years 32 

The National Guard in Ascendance 34 

The Politics of Frustrated Nationalism 35 

THE NEGOTIATION OF NEW TREATIES 38 

The 1964 Riots 38 

The Oligarchy under Fire 40 

The Government of Torrijos and the National 

Guard 43 

The Treaty Negotiations 48 

The 1977 Treaties and Associated Agreements 51 

Torrijos Government Undertakes 

' ' Democratization " 57 

THE POST-TORRIJOS ERA 59 

Torrijos' s Sudden Death 59 

Noriega Takes Control 61 



vii 



Chapter 2. The Society and Its Environment 67 

Patricia Kluck 

GEOGRAPHY 70 

POPULATION 74 

Regions of Settlement 74 

Size and Growth 75 

ETHNIC GROUPS 77 

Antillean Blacks 79 

Indians 80 

SOCIAL ORGANIZATION 94 

Family and Kin 94 

Rural Society 97 

Migration 102 

Urban Society 106 

RELIGION 112 

EDUCATION 115 

HEALTH AND WELFARE 118 

Chapter 3. The Economy 123 

Scott D. Tollefson 

GROWTH AND STRUCTURE OF THE ECONOMY 126 

Changing Structure of the Economy 127 

Recent Economic Performance 130 

ROLE OF GOVERNMENT 131 

Monetary Policy 133 

Fiscal Policy 134 

HUMAN RESOURCES AND INCOME 136 

Employment 137 

Wage Policy and Labor Code 138 

Income Distribution 139 

PANAMA CANAL 139 

Role of Canal from 1903 to 1977 . 140 

Economic Implications of 1977 Treaties 141 

Current Use and Future of the Canal 142 

SERVICES 144 

Transportation and Communications 144 

Finance 148 

Tourism 151 

AGRICULTURE 152 

Land Use 152 

Land Tenure and Agrarian Reform 153 

Crops 156 

Livestock 158 

Fishing and Forestry 159 



Vlll 



INDUSTRY 159 

Manufacturing 160 

Mining 162 

Construction 163 

Energy 164 

FOREIGN ECONOMIC RELATIONS 165 

Trade 165 

Balance of Payments 167 

External Debts 168 

Chapter 4. Government and Politics 171 

Richard Millett 

THE CONSTITUTIONAL FRAMEWORK 174 

THE GOVERNMENTAL SYSTEM 176 

The Executive 176 

The Legislature 178 

The Judiciary 180 

State Agencies and the Regulation of Public 

Employees 181 

Provincial and Municipal Government 183 

NATIONALISM, POPULISM, AND MILITARISM: 

THE LEGACY OF OMAR TORRIJOS 184 

POLITICAL DEVELOPMENTS IN THE POST-TORRIJOS 

ERA . . 187 

POLITICAL FORCES 192 

Political Parties 192 

The Panama Defense Forces 196 

Business, Professional, and Labor Organizations .... 197 

Students 200 

The Roman Catholic Church 201 

The Communications Media 202 

FOREIGN RELATIONS 203 

Relations with the United States: The Panama 

Canal 204 

Other Aspects of Panamanian-United States 

Relations 207 

Relations with Central America 210 

Bilateral Relations with Other Nations 212 

Multilateral Relations 214 

Foreign Policy Decision Making 215 

Chapter 5. National Security 217 

Steve C. Ropp 

HISTORICAL BACKGROUND 220 



IX 



MISSIONS AND ORGANIZATION OF THE DEFENSE 

FORCES 224 

The General Staff 227 

Military Zones 228 

Ground Forces 229 

Panamanian Air Force and National Navy 233 

Police Forces 234 

National Guard 236 

ADMINISTRATION AND OPERATIONS OF THE 

DEFENSE FORCES 237 

Manpower 237 

Training 239 

Foreign Military Assistance 243 

Canal Defense 244 

Involvement in Political and Economic Affairs 246 

UNITED STATES FORCES IN PANAMA 248 

ADMINISTRATION OF JUSTICE 250 

Criminal Justice 253 

The Penal System 254 

Incidence of Crime 256 

NATIONAL SECURITY 257 

Appendix A. Tables 261 

Appendix B. Texts of the Panama Canal Treaties 

with United States Senate Modifications 273 

Bibliography 295 

Glossary 313 

Index 317 

List of Figures 

1 Administrative Divisions of Panama, 1987 xxii 

2 The Isthmus and Surrounding Areas in the Fifteenth and 

Sixteenth Centuries 8 

3 Dispensation of Land Within the Former Canal Zone 54 

4 Topography and Drainage 72 

5 Population Density, 1980 Census 76 

6 Estimated Population by Age and Sex, 1987 78 

7 Gross Domestic Product by Sector, 1965 and 1985 128 

8 Transportation System, mid-1980s 146 

9 Location of Major Economic Activity 154 

10 Organization of the Panama Defense Forces, 1987 226 

11 Operational Organization of the Panama Defense Forces, 

1987 230 



x 



12 Ranks and Insignia of the Panama Defense Forces, 

1987 240 

13 Selected Unit Insignia of the Panama Defense Forces, 

1987 242 



xi 



1 1 



Preface 



Like its predecessor, this study is an attempt to treat in a com- 
pact and objective manner the dominant social, political, economic, 
and military aspects of contemporary Panama. Sources of informa- 
tion included scholarly books, journals, and monographs, official 
reports of governments and international organizations, numerous 
periodicals, and interviews with individuals having special com- 
petence in Panamanian and Latin American affairs. Chapter bib- 
liographies appear at the end of the book; brief comments on sources 
recommended for further reading appear at the end of each chap- 
ter. Measurements are given in the metric system; a conversion 
table is provided to assist readers unfamiliar with metric measure- 
ments (see table 1, Appendix A). A glossary is also included. 

Although there are numerous variations, Spanish surnames 
generally consist of two parts: the patrilineal name followed by the 
matrilineal. In the instance of Omar Torrijos Herrera, for exam- 
ple, Torrijos is his father's name, Herrera, his mother's maiden 
name. In non-formal use, the matrilineal name is often dropped. 
Thus, after the first mention, we have usually referred simply to 
Torrijos. A minority of individuals use only the patrilineal name. 



Xlll 



1 * 



Country Profile 




Country 

Formal Name: Republic of Panama (Republica de Panama). 

Short Form: Panama. 

Term for Citizens: Panamanian(s). 

Capital: Panama City (Panama). 

Geography 

Size: Approximately 77,082 square kilometers. 

Topography: Dominant feature of landform is central spine of high- 
lands forming continental divide. Highest elevations near borders 
with Costa Rica and Colombia. Lowest elevations at waist of coun- 
try where it is crossed by Panama Canal. Most of population 



xv 



concentrated on Pacific side of divide southwestward from Panama 
City. 

Climate: Tropical climate with high temperatures and humidity 
year round; pleasanter conditions prevailing in highlands and on 
Pacific side of continental divide. Seasons determined by rainfall 
rather than by changes in temperature. Prolonged rainy season 
between May and December; short dry season between Decem- 
ber and April in parts of Pacific slope and for shorter periods on 
Atlantic slope of divide. 

Society 

Population: In mid- 1987 population estimated at 2.3 million; rate 
of annual growth calculated at about 2.2 percent in the 1980s. 

Education and Literacy: Compulsory attendance to age fifteen 
or completion of six-year primary level. Education free at public 
primary, secondary, and high schools; nominal tuition at Univer- 
sity of Panama. About 87 percent of population over age 10 literate. 

Health: Although high proportion of medical facilities and per- 
sonnel located in major urban areas, most people had ready access 
to medical care of some kind, and extension of modern medical 
facilities to rural areas continued in late 1980s. Life expectancy 
at birth in 1985 seventy-one years. 

Language: Spanish the official language and mother tongue of over 
87 percent of the people. Antilleans — about 8 percent of the popula- 
tion — primarily spoke English, and Indians — about 5 percent — 
spoke their own tongues, but with a growing number adopting 
Spanish as second language. 

Ethnic Groups: Society composed of three principal groups: 
Spanish-speaking mestizos, representing the vast majority of inhab- 
itants; English-speaking Antillean blacks, constituting approxi- 
mately 8 percent of the population; and tribal Indians, making up 
about 5 percent of the population. Mestizos originally identified 
as people of mixed Indian-Spanish heritage, but term now refers 
to any racial mixture where the individual conforms to the norms 
of Hispanic culture. Also some unmixed Caucasians. 

Religion: Overwhelmingly Roman Catholic. Ratio of priests to 
population quite low, and relatively few Panamanians enter priest- 
hood. Antilleans predominantly Protestant. 



xvi 



Economy 

Gross Domestic Product (GDP): US$4.9 billion in 1985, more 
than US$2,000 per capita. Growth of GDP estimated at 2.8 per- 
cent for 1986, demonstrating some economic recovery following 
very low or negative growth as a result of recession after 1982. 

Agriculture: About 9 percent of GDP in 1985. Crops represented 
just over 63 percent of value added in agriculture. Main crops — 
bananas, sugarcane, rice, corn, coffee, beans, tobacco, melons, and 
flowers. Livestock (producing primarily red meat) accounted for 
nearly 30 percent of value added in agriculture; fishing (primarily 
shrimp), just over 4 percent; and forestry, nearly 3 percent. Largely 
self-sufficient in foods except wheat. 

Industry: Nearly 18 percent of GDP in 1985, including primarily 
manufacturing and mining (over 9 percent of GDP), construction 
(nearly 5 percent of GDP), and energy (over 3 percent of GDP). 
Manufacturing consisted mainly of import substitution, consumer 
goods. A few larger plants, including oil refining, electric power, 
cement, and sugar. Manufacturing concentrated near major cities. 

Services: Over 73 percent of GDP in 1985. Sector included trans- 
portation, banking and other financial services, government ser- 
vices, wholesale and retail trade, and other services. 

Currency: Balboa equal to United States dollar. Balboas available 
only in coins. Dollars circulated as the only paper currency. 

Imports: US$1.34 billion in 1985, including primarily manufac- 
tured goods, crude oil, machinery and transportation equipment, 
chemicals, and food products. 

Exports: US$414.5 million in 1985, mainly refined petroleum, 
bananas, sugar, manufactured goods, shrimp, and clothing. 

Balance of Payments: Traditionally, no short-run constraints 
because of monetary system. Large exports of services, including 
those to former Canal Zone, nearly compensated for deficits in mer- 
chandise trade balance. Substantial inflow of capital. Beginning 
in June 1987, however, extensive capital flight, bank closures, and 
cutoffs of United States aid as a result of the volatile political situa- 
tion posed serious short- and long-term financial problems for 
Panama. 

Fiscal Year (FY): Calendar year. 

Fiscal Policy: Public-sector expenditures considerably above 
revenues, resulting in large external public debt — one of the world's 



xvn 



largest on a per capita basis. Austerity and structural adjustment 
programs imposed in 1983-84 successful in reducing deficit, but 
debt service remained a major burden in the late 1980s. 

Transportation and Communications 

Ports: Fourteen ports, the most important Balboa (Pacific) and 
Cristobal (Atlantic) at entrances to Panama Canal. 

Railroads: There were 3 separate, unconnected systems totalling 
238 kilometers. Main line between Panama City and Colon 
(seventy-six kilometers). Other two in west, originating in David 
and Almirante, respectively, and continuing across the Costa Rican 
border. 

Roads: In 1984 about 9,535 kilometers, 32 percent asphalted. Prin- 
cipal axes are Pan-American Highway, running across Panama 
from Costa Rica toward Colombia, and Trans-isthmian Highway 
from Panama City to Colon. 

Airports: Eight main fields, including one international airport: 
General Omar Torrijos International Airport, more commonly 
known as Tocumen International Airport, near Panama City. 

Oil Pipeline: Trans-isthmian pipeline completed in 1982. Approxi- 
mately eighty-one kilometers long, running from Puerto Armuelles 
to Chiriquf Grande. 

Telecommunications: Well-developed internal and external 
systems. 

Government and Politics 

Government: Executive — under provisions of 1972 Constitution, 
as amended in 1978 and 1983, chief executive is president of the 
republic, assisted by two vice presidents, all elected by popular vote 
for five-year terms. In late 1980s, de facto executive authority 
remained, however, in hands of commander of Panama Defense 
Forces (Fuerzas de Defensa de Panama — FDP). Legislature — sixty- 
seven-member unicameral Legislative Assembly created in 1983; 
members popularly elected for five-year terms that run concurrently 
with presidential term. Judiciary — Highest court is Supreme Court 
made up of nine members and nine alternates who serve ten-year 
terms after nomination by the executive branch and ratification 
by Legislative Assembly. Supreme Court divided into three cham- 
bers for civil, penal, and administrative cases. Lower courts include 
superior tribunals, circuit courts, municipal courts, and night 



xvin 



courts. Public Ministry, headed by attorney general, acts as state 
representative within judiciary. 

Politics: Political culture traditionally characterized by personal- 
ism (personalismo), the tendency to give one's political loyalties to 
an individual rather than to a party or ideology. Politics from 1968 
coup until his death in 1981 dominated by General Omar Torrijos 
Herrera, formally head of government from 1968 to 1978 and there- 
after de facto head of government while commander of the National 
Guard. Torrijos's influence continued after his death, as both mili- 
tary and civilian leaders sought to lay claim to his political and social 
heritage. Proliferation of parties after 1980, when political system 
opened up again. Most activity divided into two main coalitions: 
pro- government and opposition. Pro-government coalition headed 
by party created by Torrijos: Democratic Revolutionary Party 
(Partido Revolucionario Democratico — PRD). Nation's principal 
opposition party was Authentic Panamenista Party (Partido Pana- 
mefiista Autentico — PPA) led by veteran politician Arnulfo Arias 
Madrid. Political crisis over lack of democratization and scandals 
associated with the FDP commander, General Manuel Antonio 
Noriega Morena, began in June 1987 and escalated throughout 
the year and into 1988. Opposition forces remained fragmented, 
but popular protests were orchestrated by the National Civic 
Crusade (Cruzada Civilista Nacional — CCN), a coalition of civic, 
business, and professional forces. 

International Relations: Traditionally dominated by bilateral 
relations with United States; special relationship created by 1977 
Panama Canal treaties continued to be most important aspect of 
foreign relations in late 1980s. Relations very strained and trou- 
bled, however, in late 1987 because of United States concerns over 
the lack of democratization and serious allegations of involvement 
of the FDP commander in drug trafficking and money launder- 
ing. Following negotiation of Panama Canal treaties, Panama has 
given more attention to other commercial and trade relations and 
especially to the Central American peace process. 

International Agreements and Membership: The country is party 
to Inter- American Treaty of Reciprocal Assistance (Rio Treaty) 
and Treaty for the Prohibition of Nuclear Weapons in Latin 
America (Tlatelolco Treaty) and is bound by provisions of Panama 
Canal treaties. Also a member of Organization of American States, 
United Nations and its specialized agencies, World Bank, Inter- 
national Monetary Fund, and Inter- American Development Bank, 
as well as an active member of the Nonaligned Movement. 



xix 



National Security 



Armed Forces: Panama Defense Forces (Fuerzas de Defensa de 
Panama — FDP) include military forces, police forces, and National 
Guard, with total strength of about 15,000. 

Military Units: Principally ground forces with four combat bat- 
talions, four support battalions, eight infantry companies, and one 
cavalry squadron. Also a small air force and navy, as well as para- 
military National Guard. 

Equipment: Limited equipment inventory. Most infantry weapons, 
military vehicles, naval craft, and aircraft from United States. Two 
largest (thirty-meter) patrol craft from Britain. 

Foreign Military Treaties: Bilateral treaties with United States 
for canal defense. 

Police: Police forces subordinate to FDP and include a variety of 
uniformed, undercover, and civilian forces. Most significant are 
National Department of Investigations (Departamento Nacional 
de Investigaciones — DENI), undercover security police, and First 
Public Order Company (Doberman), which handles riot control. 



xx 




xxii 



1 1 



Introduction 



PANAMA'S HISTORY, as well as its present-day social, eco- 
nomic, and political life, has been dominated by the country's 
significant geographic position. Encompassing the lowest and nar- 
rowest portion of the isthmus connecting North America and South 
America, Panama has for centuries served as a land bridge and 
transit zone between continents and oceans. 

The narrowness of the isthmus inspired various attempts to facili- 
tate passage between the Atlantic and Pacific oceans. Following 
their arrival in Panama in 1501, the Spanish turned Panama into 
a principal crossroads and marketplace of the great Spanish Empire 
(see The Conquest; The Spanish Colony, ch. 1). They built the 
Camino Real, or royal road, to link settlements on the Pacific and 
Atlantic coasts and used the road to transport treasures from the 
west coast of South America — especially Peruvian gold and silver — 
to Spanish galleons waiting on the Atlantic coast for the trip to 
Spain. 

As early as 1520, however, frustrated by the slowness and haz- 
ards of the Camino Real, the Spanish undertook surveys to deter- 
mine the feasibility of constructing a canal across the isthmus. The 
United States, seeking a quicker passage to its west coast because 
of the discovery of gold in California in 1848, promoted the con- 
struction of a trans-isthmian railroad, which was completed in the 
1850s. But it was the French who first undertook what the Span- 
ish ultimately had abandoned as impractical — and undesirable 
because it would be an attractive target for other world powers. 
Under the direction of Ferdinand de Lesseps, the builder of the 
Suez Canal, the French in 1879 attempted to construct a canal 
across the isthmus. The project was abandoned in 1889 because 
of the combined effects of disease, faulty design, and, finally, 
bankruptcy. The United States soon took on the project, building 
on what the French had done, and the first ship passed through 
the Panama Canal on August 15, 1914 (see Building the Canal, 
ch. 1). 

Since that time, the Panama Canal has been the single greatest 
factor influencing Panama's society, economy, political life, and 
foreign relations. Panamanian society in the 1980s continued to 
reflect Panama's unusual position as a transit zone and the home 
of the canal, factors that subjected Panama to a variety of outside 
influences and gave the country an ethnic diversity not commonly 
associated with Latin America (see Ethnic Groups, ch. 2). Like 



xxin 



other former Spanish colonies, Panama's population was over- 
whelmingly Spanish-speaking and Roman Catholic; most inhab- 
itants were regarded as mestizos — a term that originally referred 
to those of mixed Spanish and Indian heritage, but increasingly 
had come to mean any racial mixture in individuals conforming 
to the norms of Hispanic culture. In addition to mestizos and tribal 
Indians, Panama contained a significant minority of Antillean blacks 
(8 percent of the population) — Protestant, English-speaking descen- 
dants of Caribbean laborers who built the canal. There also were 
significant numbers of Chinese, Jews, Arabs, Greeks, East Asians, 
South Asians, Lebanese, Europeans, and North Americans — both 
immigrants and expatriate residents — who came to Panama to take 
advantage of commercial opportunities associated with the canal. 

The Panama Canal has also shaped Panama's economic develop- 
ment. First, the canal has been a major source of wealth for Panama 
because of revenue generated by canal traffic, the influx of work- 
ers who built and later maintained the canal, and the large United 
States civilian and military presence associated with the canal. Until 
the Latin American economic slump in the mid-1980s, Panama 
was generally regarded as wealthy in the regional context, although 
the distribution of income remained skewed. Reflecting this rela- 
tive wealth, Panama registered one of the highest levels of per capita 
income in the developing world (US$2,100) in 1985. Second, 
because of the canal and other transport and service activities deriv- 
ing from the country's location, Panama's economy always has been 
service-oriented rather than productive. Services accounted for 
73 percent of the gross domestic product (GDP — see Glossary) in 
1985, the highest level in the world. The Panama Canal was the 
primary activity in the nation's services sector, but that sector was 
expanded through increased government services and initiatives 
such as the Colon Free Zone (CFZ — see Glossary), a trans-isthmian 
pipeline, and the International Financial Center, which promoted 
offshore banking and foreign investment in Panama (see Panama 
Canal; Services, ch. 3). 

A third characteristic of Panama's economy was the country's 
use of the United States dollar as its paper currency. The local cur- 
rency, the balboa (see Glossary), was available only in coins. Reli- 
ance on the United States dollar meant that the country could 
neither print nor devalue currency as a means of establishing and 
implementing monetary policies. Finally, Panama's development 
in terms of both location of economic activity and concentration 
of population followed an axis across the isthmus between Colon 
at the Atlantic terminus of the Panama Canal and Panama City 



xxiv 



on the Pacific coast. Over half of the population and most 
nonagricultural economic activity were located there. 

In addition to its major influence on social and economic life 
in Panama, the canal also bound Panama inexorably to the United 
States — and therein lies the canal's dominance of Panamanian 
politics and foreign policy. In essence, the canal itself spurred the 
creation of the modern-day nation of Panama. In order to obtain 
the rights to construct a canal, the United States fostered separatist 
sentiment in Panama, then a department of Colombia, and engi- 
neered Panama's independence from Colombia in 1903. Panama 
became a virtual protectorate of the United States, and the pat- 
tern of United States intervention set at independence was to be 
repeated numerous times throughout the first half of the twentieth 
century (see The United States Protectorate, ch. 1). 

This close relationship was from the start, however, colored by 
resentment and bitterness. The Hay-Bunau-Varilla Treaty of 1903, 
by which the United States acquired the right to construct a canal, 
was the primary source of this discontent — at least initially — for 
several reasons. First, Panama was not even a party to the treaty, 
which was signed by the United States and a French-born entre- 
preneur. Second, and more important, the treaty gave the United 
States "in perpetuity" a sixteen-kilometer-wide strip of territory 
known as the Canal Zone that split the nation into two unconnected 
pieces. (In return, Panama was to receive an annuity.) Sovereignty 
or jurisdiction over the Canal Zone, profits from canal operations, 
frustration over the continued highly visible presence and domi- 
nation of the United States in Panama, and other related issues 
became and remained the primary focus of both internal politics 
and foreign relations for Panama. Nationalism, consistently a 
powerful force in Panama in the twentieth century, was directed 
primarily against the United States presence. National leaders of 
all political persuasions both cultivated and capitalized on public 
discontent with the United States. Indeed, these leaders kept popular 
resentment narrowly focused on the United States lest it turn on 
the Panamanian elite, commonly known as the oligarchy, which 
traditionally controlled Panama's political, economic, and social 
life (see Urban Society, ch. 2). 

The quest for a more equitable treaty governing the Panama 
Canal has dominated Panamanian-United States relations through- 
out the twentieth century. The Hay-Bunau-Varilla Treaty was 
modified several times. But Panama's hopes for a completely new 
treaty were not realized until 1977, when the two countries brought 
to fruition negotiations that had been initiated as early as 1971 (see 
The Treaty Negotiations, ch. 1). Panama and the United States 



XXV 



actually signed two treaties on September 7, 1977. The first, the 
Panama Canal Treaty, abrogated all previous treaties with respect 
to the canal and transferred legal jurisdiction over the Canal Zone 
to Panama. The treaty created a United States agency, the Panama 
Canal Commission, to operate, manage, and maintain the canal 
until noon, December 31, 1999, at which time Panama will secure 
unfettered ownership and management of the canal. The commis- 
sion consists of five United States citizens and four Panamanians 
working under an American administrator and a Panamanian 
deputy until 1990; thereafter the commission will work under a 
Panamanian administrator appointed by the winner of the 1989 
presidential elections in Panama, but approved by the United States 
president with the advice and consent of the United States Senate. 
In other words, the canal will remain under the effective control 
of the United States government throughout the treaty period (see 
The 1977 Treaties and Associated Agreements, ch. 1; for texts of 
the treaties, see Appendix B). 

The second treaty, the Treaty Concerning the Permanent Neu- 
trality and Operation of the Panama Canal, popularly known as 
the Neutrality Treaty, was vigorously resisted by the Panamanian 
negotiators and remains particularly galling to the government and 
the public. It provides for joint Panamanian and United States 
responsibility for the protection of the canal, but because it has 
no termination date, it smacks of the detested "in perpetuity" 
phrase of the original 1903 treaty. Panamanian concern over pos- 
sible United States intervention in Panamanian affairs based on 
this treaty was sharpened by various unilateral interpretations and 
conditions that were attached to the treaties by the United States 
Senate during its ratification proceedings. One condition attached 
to the Neutrality Treaty in effect stipulated that even after Decem- 
ber 31 , 1999, the United States could use military forces in Panama 
"to reopen the Canal or restore the operations of the Canal." 
Although the Panamanian government and public were incensed 
over this attachment, Panama continued with the ratification. It 
did, however, append the following statement to the two documents: 
"The Republic of Panama will reject, in unity and with decisive- 
ness and firmness, any attempt by any country to intervene in its 
internal or external affairs." 

Thus, despite the high hopes of all concerned, the negotiation 
of new treaties failed to resolve Panamanian discontent. Issues 
related to the canal continued to muddy the waters of United States- 
Panamanian relations in 1988 (see Relations with the United States: 
The Panama Canal; Other Aspects of Panamanian-United States 
Relations, ch. 4). United States-Panamanian relations also were 



xxvi 



strained by growing United States dissatisfaction with Panama's 
military-dominated political system. Panama's failure to establish 
a democratic form of government was an especially sore point for 
the United States government because "democratization" in 
Panama was an American condition for support of the Panama 
Canal treaties. 

Panama's political system dates back to the year 1968 — a 
watershed in Panamanian history. In that year the National Guard 
staged a coup — not for the first time — and established an endur- 
ing pattern of direct and then indirect military control of the govern- 
ment. Despite the subsequent construction of a democratic facade 
in the late 1970s, de facto control of the nation's politics in 1988 
remained firmly in the hands of the commander of the National 
Guard's successor organization, the Panama Defense Forces 
(Fuerzas de Defensa de Panama — FDP). 

The 1968 coup also represents a major turning point in Panama- 
nian history because it brought to power Brigadier General Omar 
Torrijos Herrera, a charismatic leader whose populist legacy — 
known as Torrijismo — radically altered Panamanian politics. Prior 
to the advent of Torrijos, Panamanian politics were dominated 
almost exclusively by a small number of aristocratic families. This 
oligarchy, largely urban, tended to be white or light-skinned and 
valued its purported racial purity; aristocrats intermarried and held 
tightly to their elite status. But Torrijos built a popular base from 
the ranks of the National Guard, which was composed mostly of 
provincial black and lower- or middle-class mestizos like Torrijos 
himself, as well as an assortment of campesinos and urban work- 
ers (see The Government of Torrijos and the National Guard, ch. 1 ; 
Nationalism, Populism, and Militarism: The Legacy of Omar 
Torrijos, ch. 4). Torrijos fostered public works and agrarian reform 
and put the National Guard to work on programs to improve con- 
ditions in rural areas and to bring the poorer classes to power. 

Initially at least, Panama enjoyed an economic boom under 
Torrijos. After the passage of strict secrecy laws, Panama became 
an international banking center, and the CFZ became the world's 
second largest free-trade zone (after Hong Kong). But Panama's 
foreign debt also soared because of the extensive borrowing from 
abroad used to finance the expansion in public services, and Panama 
eventually registered one of the highest per capita debt levels in 
the world (see Growth and Structure of the Economy; External 
Debt, ch. 3). Panama's high growth rate through 1982 fell off 
sharply as the world economy went into a recession. Unemploy- 
ment, rural poverty, and a low rate of private investment also 
plagued the country. 



xxvn 



In the late 1970s, Torrijos's populist alliance already showed signs 
of eroding, primarily because of the severe economic downturn that 
had forced Torrijos to retract many of the progressive measures 
previously enacted to benefit labor and land reform. But the unpop- 
ularity of the canal treaties and the "democratization" process that 
Torrijos had initiated to win United States support for the treaties 
also were prime factors. Torrijos, for example, had permitted politi- 
cal parties, previously banned, to resume activity. In 1978 elec- 
tions were held for a new legislature, and Torrijos formally stepped 
down as head of the government in favor of Aristides Royo, a 
government technocrat who was chosen by the legislature to serve 
a six-year term as president. Torrijos nevertheless remained com- 
mander of the National Guard and, as such, the holder of real power 
in Panama. 

Torrijos's sudden death in a July 1981 airplane crash gave rise 
to a power struggle in Panama that was filled by a succession of 
figurehead presidents controlled by a series of National Guard and 
FDP commanders, who engaged in fierce internal maneuvering. 
The newly erected democratic facade remained in place and on 
paper was strengthened by the promulgation of constitutional 
amendments in 1983, which, among other things, permitted the 
direct election of a president (see The Constitutional Framework, 
ch. 4). Elections were duly held in 1984, but widespread allega- 
tions of fraud, increasingly supported by credible evidence, undercut 
the importance of the event as a demonstration of Panama's return 
to democracy. The FDP's handpicked candidate was elected, and 
the FDP commander remained the true source of political power 
in Panama. 

General Manuel Antonio Noriega Moreno, the ambitious former 
head of military intelligence in Panama, assumed control of the 
National Guard in 1983 and launched a successful effort to con- 
solidate his power. He oversaw the transformation of the National 
Guard from a small paramilitary organization into the much larger 
and more capable FDP, ostensibly capable of defending the 
expanded national territory (now including the former Canal Zone) 
and of joining the United States in defending the Panama Canal 
(see Missions and Organization of the Defense Forces, ch. 5). 
Because of the strong United States vested interest in the security 
of the canal, this transformation was accomplished with extensive 
United States training, equipment, and financial assistance. Ironi- 
cally, however, the growing size and strength of the FDP, which 
were fostered in accordance with perceived United States strategic 
interests, led to a situation that the United States increasingly 
regarded as inimical to its own interests as well as those of the 



xxvin 



Panamanian people. The FDP, which traditionally has exhibited 
strong institutional cohesiveness and loyalty to its commander, 
increasingly has become a formidable power base for enhancing 
and institutionalizing political control by the FDP commander. 

Despite Noriega's firm hold on power in Panama, a series of 
events in the mid-1980s tarnished his already unsavory international 
reputation and threatened his regime. The first occurrence was the 
violent death in September 1985 of Dr. Hugo Spadafora, a vocifer- 
ous Noriega critic. Spadafora, who purported to have hard evi- 
dence of Noriega's involvement in drug trafficking, was brutally 
murdered, and there were credible reports of FDP involvement 
in the death (see Political Developments in the Post-Torrijos Era, 
ch. 4). Panamanians were shocked, but the threat to Noriega came 
not from popular discontent, but rather from the decision of then- 
president Nicolas Ardito Barletta Vallarino to investigate the mur- 
der. To prevent such an action, Noriega forced Ardito Barletta to 
resign in favor of his vice president, Eric Arturo Delvalle Henriquez. 
Noriega successfully weathered this initial storm, but at the cost 
of an overt demonstration of the extent of military control over 
an ostensibly civilian regime. 

The second and more serious threat to Noriega and, by exten- 
sion, to the FDP, came in June 1987, when Colonel Roberto Diaz 
Herrera, chief of staff of the FDP, was forced to retire and then 
publicly denounced Noriega and other FDP officers for a variety 
of corrupt practices, including engineering the 1984 election fraud, 
ordering the murder of Spadafora, and causing the death of Tor- 
rijos. Diaz Herrera later also spoke of Noriega's involvement in 
drug trafficking. Diaz Herrera' s revelations were shocking, not so 
much because of what they said about Noriega and the FDP — 
Panamanians had long suspected these things — but because Diaz 
Herrera was the first high-ranking FDP officer to break the FDP 
code of silence. He had spoken apparently out of pique at Noriega's 
failure to live up to an earlier agreement among FDP leaders to 
rotate the position of commander. Revenge for this forced retire- 
ment also motivated Diaz Herrera' s denunciation of Noriega. 

One result of the revelations was an internal political crisis in 
Panama that as of a year later remained unresolved. In June 1987, 
a coalition of civic, business, and professional groups formed the 
National Civic Crusade (Cruzada Civilista Nacional — CCN), and 
thousands of Panamanians participated in marches and street 
demonstrations to demand Noriega's resignation. Noriega and the 
FDP responded harshly, and there were credible reports of wide- 
spread police brutality. Noriega also attempted — mostly unsuc- 
cessfully — to portray the conflict as a class and racial struggle (i.e., 



xxix 



white elite opposition to the black and mestizo masses and FDP) 
as well as a Yankee (see Glossary) conspiracy to retain United States 
control of the canal. 

The chain of events in June 1987 also led to the direct involve- 
ment of the United States in the crisis. On June 26, 1987, the United 
States Senate passed a resolution calling for a transition to genuine 
democracy in Panama. The Panamanian government responded 
by organizing a demonstration against the United States embassy 
and arresting United States diplomatic and military personnel. As 
a consequence, on July 1, 1987, the United States suspended all 
military and economic assistance to Panama. It also halted repairs 
to Panamanian military equipment and supplies of tear gas and 
spare parts. For the rest of the year and into the new year, the 
United States government continued to consider ways of escalat- 
ing the economic pressures on Panama and periodically took addi- 
tional steps in that direction. In December, for example, the United 
States Congress suspended Panama's sugar quota for exports to 
the United States, cut off all nonhumanitarian aid, prohibited joint 
military exercises, and mandated United States opposition to any 
international development bank loan for Panama until Noriega 
handed over power to a democratically elected civilian government. 

By the end of 1987, the United States government apparently 
had decided that Noriega was expendable and that serious efforts 
should be made to force him from power. United States assistant 
secretary of defense Richard Armitage headed an end-of-the-year 
effort to draw up a plan for Noriega's departure from Panama. 
But Noriega, who had been aware of the negotiations, denounced 
the plan in January 1988. 

The already volatile situation flared up further in February 1988, 
when grand juries in Miami and Tampa, Florida, indicted Noriega 
on numerous counts of racketeering, drug trafficking, and money 
laundering. The indictments accused him of using his country as 
a vast clearinghouse for drugs and money tied to the Colombian co- 
caine trade. Suspicions and growing evidence of such activities by 
Noriega (as well as arms trafficking and intelligence activities) had 
long abounded, but the United States government previously had 
not acted on the evidence, purportedly because Noriega was consid- 
ered by successive administrations as an important ally. Some United 
States government elements apparently had regarded him as vital 
for the protection of United States strategic interests in Panama; 
others, as an important source of intelligence information on Cuba. 
Moreover, Noriega had reportedly assisted United States efforts to 
oppose the Sandinista regime in Nicaragua. But support for Noriega 
died out after the events of June 1987 and the indictments. 



XXX 



The evolving crisis took another unexpected turn later in Febru- 
ary 1.988, when Panamanian president Delvalle attempted to fire 
Noriega, who then, with the solid backing of FDP officers, con- 
vened the legislature, which voted to oust Delvalle and replace him 
with education minister Manuel Solfs Palma. Delvalle went into 
hiding in Panama, and, ironically, this aristocrat, formerly branded 
as ''Noriega's man," became the unlikely leader of the opposi- 
tion to Noriega. Washington refused to recognize Solfs Palma and 
initiated an additional economic squeeze designed to bring Noriega 
down. In March 1988, the United States government froze Panama- 
nian assets (about US$50 million) in United States banks, with- 
held its monthly payment for the use of the canal, and suspended 
trade preferences on imports from Panama. (All payments due to 
the Panamanian government were placed in escrow, payable only 
to the "legitimate" government of Delvalle.) The United States 
also decertified Panama as an ally in the drug-fighting war, which, 
according to a 1986 law, would mandate an aid cut-off and justify 
other discretionary sanctions, which were not imposed at that time. 
This measure was largely symbolic, however, because aid had 
already been terminated in December 1987. 

Because Panama was dependent on the United States dollar, these 
economic measures meant that Panama had no cash with which 
to pay its employees — or to meet its interest payments on loans 
from international lending institutions or private banks. Panama's 
banks closed in early March 1988, and by mid-March half of the 
estimated US$23 billion in foreign deposits had left the country. 
Indeed, capital flight had proceeded steadily ever since the June 
1987 crisis. Even before the capital flight, the economy was stag- 
nating and suffering from high unemployment and low or nega- 
tive growth in GDP. In short, the Panamanian economy was near 
collapse. Although the economic measures adopted by the United 
States were intended to dry up the Noriega regime's cash and there- 
by force him out without permanently damaging the economy, 
analysts began to fear that the long-term effects of the crisis on the 
Panamanian economy would be devastating and that the once- 
prosperous banking sector would be irrevocably damaged. 

The CCN reacted to the economic crisis in Panama by calling 
a general strike that brought Panama's economy to a virtual stand- 
still for the month of March. Widely regarded as largely upper- 
class, white, and elite, the CCN had not engendered widespread 
popular or labor support up to that point, but in March 1988 its 
followers appeared to be growing. The populace engaged in a series 
of protests and strikes over the government's failure to pay public- 
sector employees and pensioners. Several parties and the hierarchy 



xxxi 



of the Roman Catholic Church (traditionally conservative and previ- 
ously impartial) voiced support for the crusade. Noriega did not 
appear to have much support outside the FDP and the official 
government party that had been created by Torrijos — the 
Democratic Revolutionary Party (Partido Revolucionario Demo- 
cratico— PRD). 

After the exertion of economic pressure by the United States — 
combined with growing internal opposition to the Noriega 
regime — many observers expected Noriega to be forced to step aside 
in the near future. But such was not the case. Noriega showed 
remarkable durability and ingenuity in adopting countermeasures 
that permitted his regime to survive. In an important move aimed 
at cutting off the flow of information among opposition forces, 
Noriega periodically closed down independent and opposition radio 
and television stations and newspapers. Faced with CCN strikes 
and demonstrations and spontaneous acts of protest by various 
groups (e.g., teachers, telephone workers, mill workers, and hospital 
workers), Noriega responded with violence. Troops teargassed 
demonstrating teachers, stormed Panama's largest hospital when 
hospital workers staged a protest, occupied flour mills, forcefully 
reopened the port of Balboa after dock workers went on strike, 
stormed a luxury hotel to arrest opposition figures, intimidated 
shops and supermarkets into reopening, forced banks to reopen 
for limited operations, and purged (forcibly retired or imprisoned) 
FDP officers implicated in a mid-March 1988 coup attempt or sus- 
pected of disloyalty. Acting under a declared state of urgency, 
Noriega increasingly moved to take over all key economic sectors 
and public services so that he could survive a prolonged economic 
battle. 

In addition to instituting measures designed to quell popular pro- 
tests, Noriega showed great resourcefulness in his quest for cash 
dollars. By the end of March, he had amassed enough cash to meet 
some of the government's payrolls. His sources of cash included 
cash salary payments to Panamanians working for United States 
military forces in Panama, the Panama Canal Commission, and 
various foreign banks; the conversion of Panamanian assets of the 
Latin American Export Bank into hard currency in Europe; and 
taxes paid by United States companies with branches in Panama. 
The United States government later tried to close off the latter flow 
of dollars, but regulations prohibiting payments to the government 
of Panama were so general that they were difficult to enforce. 
Another factor in Noriega's ability to weather the cash crisis was 
the introduction of an alternative currency system that used govern- 
ment checks, issued in small denominations. These "Panadollars" 



xxxn 



could not be cashed at banks, but were widely exchanged in lieu 
of cash. 

Noriega's successful containment of the violence in Panama, 
defeat of the attempted coup, and acquisition of cash apparently 
reinforced his determination to stay in power. In March 1988, 
Noriega began to toy with both opposition and United States 
government attempts to negotiate his departure. But he ultimately 
rejected all proposed deals, even though between March and May 
the United States increasingly backed down on its initial require- 
ments and met virtually all demands put forth by Noriega, including 
his insistence that the indictments be dropped. 

Thus, by June 1988, the situation had reached an impasse. The 
opposition in Panama remained committed to ousting Noriega and 
restoring democracy to the country, but its protest activities were 
sporadic and its leaders disheartened. In fact, most CCN leaders 
had left the country. There was some discussion of opposition nego- 
tiations with Noriega, but few observers expected any such attempts 
to prove fruitful. The United States government maintained all 
economic sanctions previously imposed against Panama, and on 
June 6 announced its intention of more rigidly enforcing regula- 
tions prohibiting payments to the government of Panama. United 
States government officials also made vague threats about other 
future actions against Panama, but they publicly ruled out any mili- 
tary intervention in the absence of a direct threat to the Panama 
Canal, and most observers noted the lack of other viable United 
States options. The prospect of Latin American mediation to achieve 
a negotiated settlement offered some hope of an end to the crisis, 
but there was no apparent progress in this direction as of August 
1988. Meanwhile, the Panamanian economy, although outwardly 
functioning more normally, continued its steady deterioration, as 
evidenced by continued layoffs, bankruptcies, a sharp decline in 
the GDP, and defaults on payments of the foreign debt. 

The acknowledged failure of the combined efforts of the United 
States government and the Panamanian opposition to force out 
Noriega resulted from several factors that observers discussed at 
great length in the media and on which they generally agreed. First, 
the Panamanian opposition did not develop into a "people's power" 
movement such as those that had successfully toppled dictators in 
the Philippines and Haiti earlier in the 1980s. The Panamanian 
opposition was widespread, but it remained fragmented, lacked a 
charismatic leader, failed to foster allies within the FDP (a tactic 
used successfully elsewhere), and never engendered widespread 
support among labor or the masses. In its attempt to develop 
support, the opposition was hindered somewhat by a perceived class 



xxxm 



distinction between the elite upper- and middle-class, business- 
dominated CCN and the masses, who had traditionally supported 
and benefited from FDP rule. Noriega played on this mass sus- 
ceptibility to class animosity. There was growing evidence that the 
populace regarded the FDP under Noriega as corrupt and self- 
serving and found his personal corruption distasteful, but fear and 
perceived class interests continued to override any desire for social 
change. Moreover, observers noted that the Panamanian opposi- 
tion, as well as the general populace, remained steadfastly cautious 
and nonviolent and was easily intimidated by the FDP. 

The second major reason for Noriega's retention of power was 
the strength and cohesiveness of the FDP — attributes that had been 
largely underestimated by the United States government and others. 
The FDP, out of both fear and entrenched self-interest, remained 
loyal to Noriega. Although his position was undermined somewhat 
by the defection of close associates, Noriega still was able to put 
down the March 1988 coup attempt quite easily. Subsequently, 
he managed to purge suspected dissidents and surrounded himself 
with loyal supporters and cronies. In May 1988, Noriega created 
a twenty-member Strategic Military Council headed by a colonel 
and composed of three lieutenant colonels, ten majors, and six cap- 
tains. Observers believed that this lower-ranking group increas- 
ingly bypassed the more senior general staff. Noriega also tripled 
the size of his personal security force, staffing it largely with Cubans 
and other non-Panamanians, and he reportedly also brought in 
Cuban military advisers and weapons. In short, Noriega moved 
both to consolidate his hold over the FDP and to tighten the FDP's 
grip on the country. 

Finally, and perhaps most basically, Noriega survived the crisis 
because the economic sanctions imposed by the United States 
government did not have the quick and catastrophic effect envi- 
sioned by policy makers. Despite the dependence of Panama on 
dollars, the Panamanian economy proved to be surprisingly 
resilient. In addition, the sanctions were ineffective because they 
did not directly affect Noriega, who managed to weather his liquidity 
crisis because of a continuous influx of both legal and illegal cash. 
The sanctions hit hardest on the middle class and private sector 
and created hardships for the masses. In the long run, however, 
the economy was seriously damaged, perhaps irreparably. More- 
over, some observers noted that the economic sanctions may unin- 
tentionally have destroyed the private sector, which is the base for 
moderate, democratic forces in Panama. In related events, observ- 
ers noted the ruling PRD's apparent move to the left with the 



xxxiv 



appointment of new cabinet members in late April 1988 and the 
increasingly pro-Cuban and pro-leftist leanings of the FDP. 

The focus of United States and international attention on 
Noriega — first attempting to remove him from power and then 
analyzing where such attempts went wrong — tended to obscure 
more enduring problems affecting Panama's future. In mid- 1988 
analysts uniformly agreed that, even without Noriega, who was 
not likely to leave soon, restoring order, rebuilding the damaged 
economy, and revamping the political system were formidable tasks. 
Noriega's departure would ease but not solve Panama's political 
problems. The opposition remained divided and political parties 
factionalized. Indeed, in February 1988, two parties reportedly 
formed their own opposition movement — the Popular Civic Move- 
ment (Movimiento Civilista Popular — MCP) — separate from the 
CCN. Moreover, the lack of a clear national leader as an alterna- 
tive to Noriega or another FDP officer was a serious impediment 
to opposition success. Delvalle was tainted by his former associa- 
tion with Noriega; veteran politician Arnulfo Arias Madrid died 
in August 1988; and other party leaders reportedly lacked charisma. 

Finally, and most important, the extensive, institutionalized con- 
trol of national life by the FDP and the endemic corruption within 
the FDP (including widespread involvement in drug trafficking and 
money laundering) stood in the way of any rapid or easy transi- 
tion to democracy in Panama. In the summer of 1988, some 
observers reported that certain FDP elements were discontent with 
Noriega. They predicted that Panamanian military officers would 
eventually remove Noriega from power. Prospects for an end to 
corruption and a return to democratic civilian rule in Panama, 
however, would not necessarily be improved by a military coup 
that ousted Noriega alone. 

The FDP's reputation for corruption also fueled United States 
fears about the future of the Panama Canal. The prospects for an 
efficient, professional, and nonpartisan administration of the canal 
and related activities under Panamanian leadership were not good 
based on the evidence of Panama's corrupt, politicized manage- 
ment of the trans-isthmian railroad, ports, and other former Canal 
Zone property turned over to it in 1979. Indeed, some analysts 
believed that even before the crisis ignited in June 1987, maladmin- 
istration, political patronage, and corruption had become so pro- 
nounced and extensive that they jeopardized the future of Panama's 
economy. 

Panama's future thus remained clouded in mid- 1988. Although 
life had in some senses returned to normal following the turmoil 
that had flared up in June 1987, the political system remained 



xxxv 



unrepresentative and potentially unstable, the economy chaotic, 
and relations with the United States severely strained. 

August 15, 1988 

As of late March 1989, there had been no major changes in the 
situation in Panama since research and writing of this book were 
completed. But observers agreed that the United States attempt 
to oust Noriega had failed. Despite his increasing international isola- 
tion and lack of popular support, Noriega had survived, and, against 
all odds, the battered economy had not collapsed. 

In the spring of 1989, political activity in Panama focused on 
preparations for the presidential election set for May 7, 1989. Pro- 
government parties — the PRD, Labor and Agrarian Party (Partido 
Laborista Agrario — PALA), Republican Party (Partido Repub- 
lican© — PR), National Liberal Party (Partido Liberal Nacional — 
PLN), and several other small parties — had formed a new electoral 
coalition, the National Liberation Coalition (Coalicion de Libera- 
cion Nacional — COLINA). COLINA's slate of candidates, an- 
nounced in early February 1989, included Carlos Alberto Duque 
Jaen of the PRD for president, Ramon Sieiro Murgas of PALA 
for first vice president, and Aquilino Boyd, the government's 
ambassador to the Organization of American States, for second 
vice president. All three were widely regarded as staunch Noriega 
supporters: Duque, a business partner of Noriega; Sieiro, Noriega's 
brother-in law; and Boyd, a Noriega regime loyalist. 

Opposing the government coalition were three major opposition 
parties — the Christian Democratic Party (Partido Democrato Cris- 
tiano — PDC), National Liberal Republican Movement (Movimiento 
Liberal Republicano Nacional — MOLIRENA), and Authentic Lib- 
eral Party (Partido Liberal Autentico — PLA), which had banded 
together in a coalition known as the Civic Democratic Opposition 
Alliance (Alianza Democratica de Oposicion Cfvica — Civic ADO 
or ADOC). Civic ADO also had the support of the Crusade (CCN), 
the small Popular Action Party (Partido de Accion Popular — PAPO), 
and a dissident faction of the Authentic Panamenista Party (Partido 
Panamenista Autentico — PPA), which had split after the death of 
Arias Madrid in August 1988. When the Electoral Tribunal 
gave official recognition and control of the party to a small faction 
headed by Hildebrando Nicosia Perez, who had broken with Arias 
Madrid in the mid-1980s, the majority faction, led by Guillermo 

xxxvi 



Endara, left the PPA and formed the Arnulfist Party. The Arnul- 
fist Party threw its considerable weight behind Civic ADO, and 
its leader, Guillermo Endara, was put forward as Civic ADO's 
presidential candidate. In addition to Endara, Civic ADO's elec- 
toral slate included Ricardo Arias Calderon of the PDC for first 
vice president and Guillermo Ford of MOLIRENA for second vice 
president. The official PPA refused to join either coalition, prefer- 
ring to run its own slate of candidates headed by Nicosia for 
president. 

Observers predicted that the government-sponsored candidates 
would prevail. The Noriega regime was widely expected to ensure 
the victory of its candidates through a combination of electoral fraud 
and pre-electoral tactics designed to intimidate and divide the 
opposition. Indeed, the opposition claimed that thousands of names 
of opposition party supporters had already disappeared from the 
lists of eligible voters. Moreover, in the period leading up to the 
election, the Noriega regime was reportedly using its control of the 
three-member Electoral Tribunal to capitalize on internal divisions 
in legitimate opposition parties. In disputes over party leadership, 
the tribunal had consistently ruled in favor of minority factions pre- 
sumed more loyal to Noriega, most notably in the case of the PPA. 
Analysts regarded such rulings as attempts to "steal" these oppo- 
sition parties and undercut their electoral strength. Some observ- 
ers even postulated that Nicosia had purposely split the PPA in 
order to create a rift in the opposition, reduce support for Civic 
ADO, and enhance the electoral prospects of COLINA. 

The pre-electoral period in Panama was a tense one with respect 
not only to internal Panamanian politics but also to relations 
between Panama and the United States. In addition to its political 
machinations, the Noriega regime's continued harassment of 
Americans in Panama, incursions onto United States military 
facilities, hostile propaganda, and charges of violations of the 
Panama Canal treaties exacerbated the already poor relations 
between the two countries. Observers believed that the future tone 
and direction of the relationship would be determined to a large 
extent by the outcome of the May 1989 election. The United States 
would face difficult policy decisions over how to react to the expected 
electoral fraud; what to do about the economic sanctions, which 
were unpopular and ineffective but still officially in place; and how 
to handle the turn-over of directorship of the Panama Canal Com- 
mission to a Panamanian in 1990, given the high probability of 
an undemocratic and hostile regime in Panama. 

Panama itself faced an uncertain future. Although victory for 
pro-Noriega forces seemed assured in the short term, in the longer 



xxxvn 



term they were expected to confront increasing regional and inter- 
national isolation, continued United States opposition, and, most 
seriously, bleak economic prospects because of the dramatic drop 
in GDP and government income and the equally drastic rise in 
capital flight and unemployment. The once vital Panamanian econ- 
omy was a shambles, and its future looked grim, indeed. 

March 27, 1989 

* * * 

Late on the night of May 10, 1989, the Electoral Tribunal 
announced that the May 7 elections — presidential, legislative, and 
local — had been annulled because of violence and "foreign inter- 
ference." The announcement followed three days of uncertainty, 
controversy, and incipient violence during which both sides claimed 
victory although official results had not been forthcoming. Duque 
declared himself the winner on election night, and partial results 
slowly released by the government over the next three days showed 
him leading by a two-to-one margin. But the Roman Catholic 
Church in Panama, independent exit polls, and international elec- 
tion observers supported the opposition's contention that it had 
won by a margin of about three to one. 

The opposition stated unequivocally that the elections were 
fraudulent and that the official results were based on fake tally 
sheets. Most observers agreed with them. They cited numerous 
instances of military and paramilitary raids on vote-counting centers 
during which original tally sheets were seized or destroyed. It 
appeared that the Noriega regime, unable to steal the election 
unobtrusively because of the wide margin of the opposition's vic- 
tory, had resorted to crude and overt fraud to ensure the victory 
of its hand-picked candidates. 

In addition, the regime responded to opposition demonstrations 
with violence, forcibly dispersing protesters. On May 10, mem- 
bers of Noriega's civilian paramilitary squads, known as Dignity 
Battalions, which were believed to be composed primarily of mem- 
bers of the FDP, attacked and savagely beat opposition candidates 
Endara, Arias Calderon, and Ford during a motorcade and popu- 
lar demonstration to protest the electoral fraud. The Noriega regime 
responded to international condemnation of its actions by expelling 
foreign journalists and harassing United States diplomatic and mili- 
tary personnel stationed in Panama. 

Despite its use of fraud and violence, however, the Noriega 
regime ultimately gave up on any attempt to claim victory in the 



xxxvin 



elections and instead nullified them. Opposition and church lead- 
ers rejected the annulment and demanded official recognition of 
the opposition's electoral victory and a turnover of power to the 
newly elected government on September 1, 1989, as scheduled. 
In addition, the opposition called for a twenty-four-hour general 
strike to be held on May 17. 

Most Latin American nations, except for Cuba and Nicaragua, 
also condemned the annulment but warned against United States 
military intervention. A special meeting of the Organization of 
American States to discuss the situation was scheduled for May 17, 
and the Group of Eight (a coalition of eight Latin American democ- 
racies from which Panama had been suspended in February 1988) 
expressed "profound concern" over events in Panama. West Euro- 
pean nations also denounced the Noriega regime's actions. 

For its part, the United States stood by its earlier condemna- 
tion of the elections as fraudulent, deplored the use of violence, 
refused to recognize the Noriega regime, and called on Panama- 
nians to overthrow Noriega. The United States took steps to protect 
its personnel and property in Panama and to prepare for a possi- 
ble evacuation of United States personnel and their dependents from 
Panama. It also ordered the deployment to Panama of an addi- 
tional brigade of combat troops, recalled its ambassador, and en- 
gaged in diplomatic initiatives to isolate Noriega and encourage 
a regional solution to the crisis. 

Thus, the political crisis that had begun in Panama in June 1987 
remained unresolved and had, in fact, escalated to a new and more 
dangerous level. The situation remained very tense as observers 
awaited Noriega's further efforts to exert control and the domestic 
and international responses to his actions. 



May 15, 1989 Sandra W. Meditz 



XXXIX 



Chapter 1. Historical Setting 



Cuna Indian mola design of a Panamanian coin featuring Spanish explorer 
Vasco Nunez de Balboa 



THE HISTORY OF the Panamanian isthmus, since Spaniards 
first landed on its shores in 1501, is a tale of treasure, treasure seek- 
ers, and peoples exploited; of clashes among empires, nations, and 
cultures; of adventurers and builders; of magnificent dreams ful- 
filled and simple needs unmet. In the wake of Vasco Nunez de 
Balboa's torturous trek from the Atlantic to the Pacific in 1513, 
conquistadors seeking gold in Peru and beyond crossed the seas 
and recrossed with their treasures bound for Spain. The indigenous 
peoples who survived the diseases, massacres, and enslavement of 
the conquest ultimately fled into the forest or across to the San Bias 
Islands. Indian slaves were soon replaced by Africans. 

A century before the English settled Massachusetts Bay, Panama 
was the crossroads and marketplace of the great Spanish Empire, 
the third richest colony of the New World. In the seventeenth cen- 
tury, however, the thriving colony fell prey to buccaneers of the 
growing English Empire, and Panama entered a period of decline 
and neglect that lasted until gold was discovered in California. 

The geopolitical significance of Panama has been recognized since 
the early 1500s, when the Spanish monarchs considered digging 
a canal across the isthmus. United States interest, intensified in 
the 1850s by the California gold rush, resulted in the construction 
of a trans-isthmian railroad. In 1879 a French company under the 
direction of Ferdinand de Lesseps, builder of the Suez Canal, began 
constructing a canal in Panama. The project fell victim to disease, 
faulty design, and ultimately bankruptcy and was abandoned in 
1889. 

By the turn of the twentieth century, the United States had 
become convinced that a canal should be built to link the two oceans. 
In addition to the geographic advantages of the isthmus, President 
Theodore Roosevelt was attracted by the separatist tendencies of 
Panama, then a department of Colombia. When Panama rebelled 
against Colombia in 1903, Roosevelt deployed United States naval 
vessels to discourage the Colombian forces and proudly claimed 
the role of midwife at the birth of the Republic of Panama. 

Since its completion in 1914, the Panama Canal has been 
Panama's economic base, and the United States presence has been 
the republic's major source of frustration. The provisions of the 
treaty concluded in 1903 between John Hay and Philippe Bunau- 
Varilla (the Hay-Bunau-Varilla Treaty) granted the Canal Zone 
"in perpetuity" to the United States and made Panama a virtual 



3 



Panama: A Country Study 

protectorate of the United States. Relations with the United States 
in general, and the status of the Canal Zone in particular, long 
remained the overriding concerns of the formulators of Panama's 
foreign policy and strongly influenced domestic politics and inter- 
national relations. 

Despite the negotiation of treaty amendments in 1936 and 1955. 
limiting the freedom of the United States to intervene in Panama's 
internal affairs, various problems between the two countries con- 
tinued to generate resentment among Panamanians. Aside from 
the larger issue of jurisdiction over the zone — which split the country 
into two parts — Panamanians complained that they did not receive 
their fair share of the receipts from the canal, that commissaries 
in the zone had damaged their commercial interests, that Panama- 
nian workers in the zone were discriminated against in economic 
and social matters, and that the large-scale presence of the United 
States military in the zone and in bases outside the zone cast a long 
shadow over national sovereignty. 

After serious rioting in 1964 that indicated the intensity of 
nationalistic aspirations concerning the status of the canal, the 
United States agreed to enter into negotiations for a new treaty. 
Meanwhile, studies relating to the construction of a new canal were 
undertaken. In 1971 after a four-year interlude, negotiations were 
renewed. In 1977 two new treaties were signed, one providing for 
Panamanian assumption of control over the canal in the year 2000 
and the other providing for a permanent joint guarantee of the 
canal's neutrality. 

The focal point of consensus in Panamanian political life, cut- 
ting across both social and partisan divides, has been nationalism. 
Nationalistic sentiments, directed primarily against the highly visible 
and dominant presence of the United States, have been catered 
to in varying degrees by all who have held positions of leadership 
or have sought popular support. Public demonstrations and riots, 
as occurred in 1927, 1947, 1959, and 1964. have been effective 
in influencing policy, especially in relation to the country's stance 
vis-a-vis the United States. National leaders have alternately 
responded to and contributed to an explosive climate of public opin- 
ion. They have carefully kept popular resentment narrowly focused 
on the United States presence lest discontent turn on the Panama- 
nian elite, generally referred to as the oligarchy. 

Until the National Guard seized control in 1968, power had been 
wielded almost exclusively by a small number of aristocratic fami- 
lies. The middle class was constrained from challenging the sys- 
tem because most of its members depended on government jobs. 
Also, the slow pace of industrialization had limited the political role 



4 



Historical Setting 



of urban labor. The lower classes lacked organization and leader- 
ship. They had been distracted from recognizing common problems 
by the ethnic antagonisms between those of Spanish or mestizo back- 
ground and the more recent immigrants, Antillean blacks from 
Jamaica and other parts of the West Indies. 

Brigadier General Omar Torrijos Herrera, who in 1969 as com- 
mander of the National Guard assumed the role of head of govern- 
ment, had some initial success in building a popular base for his 
government among small farmers and urban workers. His domestic 
program emphasized public works — especially the construction of 
roads, bridges, schools, and low-cost public housing — and an agrar- 
ian reform program. In addition, he encouraged the entry of for- 
eign banks and firms as part of his effort to create jobs and increase 
incomes. 

In negotiating new Panama Canal treaties, Torrijos, like other 
leaders before him, walked the tightrope of taking a strong stand 
on the issue to maintain popular support, while keeping popular 
frustrations within controllable limits and without appearing so mili- 
tant as to alarm the United States. Successful in this endeavor, by 
the time the new treaties were signed in 1977, Torrijos had held 
power longer than any other leader in Panama's history. 

Nevertheless, by the late 1970s, clear signs appeared to show 
that Torrijos 's populist alliance was eroding. Observers attributed 
the decline in support to a variety of factors, including severe eco- 
nomic problems that led to backtracking on social programs, 
opposition among Panamanians to the 1977 Panama Canal treaties, 
and the very "democratization" process that Torrijos initiated to 
gain United States support for the canal treaties. 

In October 1978, the 1972 Constitution had been reformed to 
allow the legalization of political parties, and exiled political lead- 
ers were permitted to return to Panama. Torrijos formally stepped 
down as head of government, and a civilian president was elected. 
Torrijos, however, clearly remained the dominant force in the 
political system. Torrijos' s shocking, sudden death in an airplane 
crash in July 1981 created a power vacuum in Panama. The newly 
erected democratic facade persisted, however, with a succession 
of civilian presidents controlled by the National Guard and its emer- 
gent leader, General Manuel Antonio Noriega Moreno, who (as 
of late 1987) had been in command since August 1983. Noriega 
successfully transformed the National Guard into the far larger 
Panama Defense Forces (Fuerzas de Defensa de Panama — FDP), 
a formidable power base for his increasing political control. 



5 



Panama: A Country Study 
The Conquest 

Estimates vary greatly of the number of Indians who inhabited 
the isthmus when the Spanish explorers arrived. By some accounts, 
the population was considerably greater than that of contemporary 
Panama. Some Panamanian historians have suggested that there 
might have been a population of 500,000 Indians from some 60 
"tribes," but other researchers have concluded that the Cuna alone 
numbered some 750,000. 

Besides the Cuna, who constituted by far the largest group in 
the area, two other major groups, the Guaymi and the Choco, have 
been identified by ethnologists (see Indians, ch. 2). The Guaymi, 
of the highlands near the Costa Rican border, are believed to be 
related to Indians of the Nahuatlan and Mayan nations of Mexico 
and Central America. The Choco on the Pacific side of Darien 
Province appear to be related to the Chibcha of Colombia (see 

fig. i). 

Although the Cuna, now found mostly in the Comarca de San 
Bias, an indigenous territory or reserve considered part of Colon 
Province for some official purposes, have been categorized as 
belonging to the Caribbean culture, their origin continues to be 
a subject of speculation. Various ethnologists have indicated the 
possibility of a linguistic connection between the name Cuna and 
certain Arawak and Carib tribal names. The possibility of cultural 
links with the Andean Indians has been postulated, and some schol- 
ars have noted linguistic and other affinities with the Chibcha. The 
implication in terms of settlement patterns is that the great valleys 
of Colombia, which trend toward the isthmus, determined migra- 
tion in that direction. 

Lines of affiliation have also been traced to the Cueva and Coiba 
tribes, although some anthropologists suggest that the Cuna might 
belong to a largely extinct linguistic group. Some Cuna believe 
themselves to be of Carib stock, while others trace their origin to 
creation by the god Olokkuppilele at Mount Tacarcuna, west of 
the mouth of the Rio Atrato in Colombia. 

Among all three Indian groups — the Cuna, Guaymi, and 
Choco — land was communally owned and farmed. In addition to 
hunting and fishing, the Indians raised corn, cotton, cacao, vari- 
ous root crops and other vegetables, and fruits. They lived then — as 
many still do — in circular thatched huts and slept in hammocks. 
Villages specialized in producing certain goods, and traders moved 
among them along the rivers and coastal waters in dugout canoes. 
The Indians were skillful potters, stonecutters, goldsmiths, and 
silversmiths. The ornaments they wore, including breastplates and 



6 



Historical Setting 



earrings of beaten gold, reinforced the Spanish myth of El Dorado, 
the city of gold. 

Rodrigo de Bastidas, a wealthy notary public from Seville, was 
the first of many Spanish explorers to reach the isthmus. Sailing 
westward from Venezuela in 1501 in search of gold, he explored 
some 1 50 kilometers of the coastal area before heading for the West 
Indies. A year later, Christopher Columbus, on his fourth voyage 
to the New World, touched several points on the isthmus. One was 
a horseshoe-shaped harbor that he named Puerto Bello (beautiful 
port), later renamed Portobelo. 

Vasco Nunez de Balboa, a member of Bastidas's crew, had set- 
tled in Hispaniola (the island encompassing present-day Domini- 
can Republic and Haiti) but stowed away on a voyage to Panama 
in 1510 to escape his creditors. At that time, about 800 Spaniards 
lived on the isthmus, but soon the many jungle perils, doubtless 
including malaria and yellow fever, had killed all but 60 of them. 
Finally, the settlers at Antigua del Darien (Antigua), the first city 
to be duly constituted by the Spanish crown, deposed the crown's 
representative and elected Balboa and Martin Zamudio co-mayors 
(see fig. 2). 

Balboa proved to be a good administrator. He insisted that the 
settlers plant crops rather than depend solely on supply ships, and 
Antigua became a prosperous community. Like other conquista- 
dors, Balboa led raids on Indian settlements, but unlike most, he 
proceeded to befriend the conquered tribes. He took the daughter 
of a chief as his lifelong mistress. 

On September 1, 1513, Balboa set out with 190 Spaniards — 
among them Francisco Pizarro, who later conquered the Inca 
Empire in Peru — a pack of dogs, and 1,000 Indian slaves. After 
twenty-five days of hacking their way through the jungle, the party 
gazed on the vast expanse of the Pacific Ocean. Balboa, clad in 
full armor, waded into the water and claimed the sea and all the 
shores on which it washed for his God and his king. 

Balboa returned to Antigua in January 1514 with all 190 sol- 
diers and with cotton cloth, pearls, and 40,000 pesos in gold. Mean- 
while, Balboa's enemies had denounced him in the Spanish court, 
and King Ferdinand appointed a new governor for the colony, then 
known as Castilla del Oro. The new governor, Pedro Arias de Avila, 
who became known as "Pedrarias the Cruel," charged Balboa with 
treason. In 1517 Balboa was arrested, brought to the court of 
Pedrarias, and executed. 

In 1519 Pedrarias moved his capital away from the debilitating 
climate and unfriendly Indians of the Darien to a fishing village 
on the Pacific coast (about four kilometers east of the present-day 



7 



Panama: A Country Study 




8 



Historical Setting 



capital). The Indians called the village Panama, meaning "plenty 
of fish." In the same year, Nombre de Dios, a deserted early set- 
tlement, was resettled and until the end of the sixteenth century 
served as the Caribbean port for trans-isthmian traffic. A trail 
known as the C amino Real, or royal road, linked Panama and 
Nombre de Dios. Along this trail, traces of which can still be fol- 
lowed, gold from Peru was carried by muleback to Spanish galleons 
waiting on the Atlantic coast. 

The increasing importance of the isthmus for transporting trea- 
sure and the delay and difficulties posed by the Camino Real 
inspired surveys ordered by the Spanish crown in the 1520s and 
1530s to ascertain the feasibility of constructing a canal. The idea 
was finally abandoned in mid-century by King Philip II (1556-98), 
who concluded that if God had wanted a canal there, He would 
have built one. 

Pedrarias's governorship proved to be disastrous. Hundreds of 
Spaniards died of disease and starvation in their brocaded silk cloth- 
ing; thousands of Indians were robbed, enslaved, and massacred. 
Thousands more of the Indians succumbed to European diseases 
to which they had no natural immunity. After the atrocities of 
Pedrarias, most of the Indians fled to remote areas to avoid the 
Spaniards. 

The regulations for colonial administration set forth by the Span- 
ish king's Council of the Indies decreed that the Indians were to 
be protected and converted to Christianity. The colonies, however, 
were far from the seat of ultimate responsibility, and few adminis- 
trators were guided by the humane spirit of those regulations. The 
Roman Catholic Church, and particularly the Franciscan order, 
showed some concern for the welfare of the Indians, but on the 
whole, church efforts were inadequate to the situation. 

The Indians, nevertheless, found one effective benefactor among 
their Spanish oppressors. Bartolome de las Casas, the first priest 
ordained in the West Indies, was outraged by the persecution of 
the Indians. He freed his own slaves, returned to Spain, and per- 
suaded the council to adopt stronger measures against enslaving 
the Indians. He made one suggestion that he later regretted — that 
Africans, whom the Spaniards considered less than human, be 
imported to replace the Indians as slaves. 

In 1517 King Charles V (1516-56) granted a concession for 
exporting 4,000 African slaves to the Antilles. Thus the slave trade 
began and flourished for more than 200 years. Panama was a major 
distribution point for slaves headed elsewhere on the mainland. 
The supply of Indian labor had been depleted by the mid-sixteenth 
century, however, and Panama began to absorb many of the slaves. 



9 



Panama: A Country Study 

A large number of slaves on the isthmus escaped into the jungle. 
They became known as cimarrones (sing., cimarron), meaning wild 
or unruly, because they attacked travelers along the Camino Real. 
An official census of Panama City in 1610 listed 548 citizens, 303 
women, 156 children, 146 mulattoes, 148 Antillean blacks, and 
3,500 African slaves. 

The Spanish Colony 

The period of free, though licensed, exploration gave way to a 
period in which the king exercised royal control by appointing 
governors and their staffs. All were to be paid from crown revenues 
expected from the royal profits on the colony. The king's represen- 
tative was responsible for ensuring such returns; he tracked all gold, 
pearls, and income from trade and conquest; he weighed out and 
safeguarded the king's share. 

Governors had some summary powers of justice, but audiencias 
(courts) were also established. The first such audiencia, in Santo 
Domingo, Hispaniola, had jurisdiction over the whole area of con- 
quest. As settlement spread, other audiencias were set up. By a decree 
of 1538, all Spanish territory from Nicaragua to Cape Horn was 
to be administered from an audiencia in Panama. This audiencia lasted 
only until 1543 because of the impossibility of exercising jurisdic- 
tion over so vast an area. A new Panamanian audiencia, with juris- 
diction over an area more nearly coinciding with the territory of 
present-day Panama, was established in 1563. The viceroy's posi- 
tion was revived for the rich empires of Mexico and Peru. After 
1567 Panama was attached to the Viceroyalty of Peru but retained 
its own audiencia. 

Beginning early in the sixteenth century, Nombre de Dios in 
Panama, Vera Cruz in Mexico, and Cartagena in Colombia were 
the only three ports in Spanish America authorized by the crown 
to trade with the homeland. By the mid- 1560s, the system became 
regularized, and two fleets sailed annually from Spain, one to Mex- 
ico, and the other to southern ports. These fleets would then 
rendezvous at Havana and return together to Cadiz, Spain. In prin- 
ciple, this rigid system remained in effect until the eighteenth cen- 
tury. From the middle of the seventeenth century, however, as the 
strength and prosperity of Spain declined, annual visits became 
the exception. 

Shipments of bullion and goods were to be delivered to Panama 
on the Pacific side for transport over the isthmus and return to 
Spain. Panama's own contribution to the loading of the fleet was 
relatively small. Gold production was never great, and little 
exportable surplus of agricultural and forest products was available. 



10 



Historical Setting 



Nothing was manufactured; in fact, Spain discouraged the produc- 
tion of finished goods. The colony's prosperity, therefore, fluctu- 
ated with the volume of trade, made up largely of Peruvian 
shipments. When the Inca gold was exhausted, great quantities 
of silver mined in Peru replaced gold in trade for 150 years, sup- 
plemented eventually by sugar, cotton, wine, indigo, cinchona, 
vanilla, and cacao. 

Except for traffic in African slaves, foreign trade was forbidden 
unless the goods passed through Spain. Africans were brought to 
the colonies on contract (asiento) by Portuguese, English, Dutch, 
and French slavers, who were forbidden to trade in any other com- 
modities. Spanish efforts to retain their monopoly on the rich profits 
from trade with their colonies provided a challenge to the rising 
maritime nations of Europe. Intermittent maritime warfare resulted 
in the Caribbean and later in the Pacific. The first serious inter- 
ference with trade came from the English. 

From 1572 to 1597, Francis Drake was associated with most of 
the assaults on Panama. Drake's activities demonstrated the inde- 
fensibility of the open roadstead of Nombre de Dios. In 1597 the 
Atlantic terminus of the trans-isthmian route was moved to 
Portobelo, one of the best natural harbors anywhere on the Span- 
ish Main (the mainland of Spanish America). 

Despite raids on shipments and ports, the registered legal import 
of precious metals increased threefold between 1550 and 1600. 
Panama's prosperity was at its peak during the first part of the 
seventeenth century. This was the time of the famous ferias (fairs, 
or exchange markets) of Portobelo, where European merchandise 
could be purchased to supply the commerce of the whole west coast 
south of Nicaragua. When a feria ended, Portobelo would revert 
to its quiet existence as a small seaport and garrison town. 

Panama City also flourished on the profits of trade. Following 
reconstruction after a serious fire in 1644, contemporary accounts 
credit Panama City with 1,400 residences "of all types" (proba- 
bly including slave huts); most business places, religious houses, 
and substantial residences were rebuilt of stone. Panama City was 
considered, after Mexico City and Lima, the most beautiful and 
opulent settlement in the West Indies. 

Interest in a canal project was revived early in the seventeenth 
century by Philip III of Spain (1598-1621). The Council of the 
Indies dissuaded the king, arguing that a canal would draw attack 
from other European nations — an indication of the decline of Span- 
ish sea power. 

During the first quarter of the seventeenth century, trade between 
Spain and the isthmus remained undisturbed. At the same time, 



11 



Panama: A Country Study 



England, France, and the Netherlands, one or all almost constantly 
at war with Spain, began seizing colonies in the Caribbean. Such 
footholds in the West Indies encouraged the development of the 
buccaneers — English, French, Dutch, and Portuguese adventurers 
who preyed on Spanish shipping and ports with the tacit or open 
support of their governments. Because of their numbers and the close- 
ness of their bases, the buccaneers were more effective against Span- 
ish trade than the English had been during the previous century. 

The volume of registered precious metal arriving in Spain fell 
from its peak in 1600; by 1660 volume was less than the amount 
registered a century before. Depletion of Peruvian mines, an 
increase in smuggling, and the buccaneers were causes of the 
decline. 

Henry Morgan, a buccaneer who had held Portobelo for ran- 
som in 1668, returned to Panama with a stronger force at the end 
of 1670. On January 29, 1671, Morgan appeared at Panama City. 
With 1,400 men he defeated the garrison of 2,600 in pitched bat- 
tle outside the city, which he then looted. The officials and citizens 
fled, some to the country and others to Peru, having loaded their 
ships with the most important church and government funds and 
treasure. Panama City was destroyed by fire, probably from blown 
up powder stores, although the looters were blamed. After 4 weeks, 
Morgan left with 175 mule loads of loot and 600 prisoners. Two 
years later, a new city was founded at the location of the present- 
day capital and was heavily fortified. 

The buccaneer scourge rapidly declined after 1688 mainly 
because of changing European alliances. By this time Spain was 
chronically bankrupt; its population had fallen; and it suffered inter- 
nal government mismanagement and corruption. 

Influenced by buccaneer reports about the ease with which the 
isthmus could be crossed — which suggested the possibility of digging 
a canal — William Paterson, founder and ex-governor of the Bank 
of England, organized a Scottish company to establish a colony 
in the San Bias area. Paterson landed on the Caribbean coast of 
the Darien late in 1698 with about 1,200 persons. Although well 
received by the Indians (as was anyone not Spanish), the colonists 
were poorly prepared for life in the tropics with its attendant dis- 
eases. Their notion of trade goods — European clothing, wigs, and 
English Bibles — was of little interest to the Indians. These colonists 
gave up after 6 months, unknowingly passing at sea reinforcements 
totaling another 1,600 people. The Spanish reacted to these new 
arrivals by establishing a blockade from the sea. The English capitu- 
lated and left in April 1700, having lost many lives, mostly from 
malnutrition and disease. 



12 



Historical Setting 



In Spain Bourbon kings replaced the Hapsburgs in 1700, and 
some liberalization of trade was introduced. These measures were 
too late for Panama, however. Spain's desperate efforts to main- 
tain its colonial trade monopoly had been self-defeating. Cheaper 
goods supplied by England, France, and the Netherlands were wel- 
comed by colonial officials and private traders alike. Dealing in 
contraband increased to the detriment of official trade. Fewer mer- 
chants came to the Portobelo feria to pay Spain's inflated prices 
because the foreign suppliers furnished cheaper goods at any port 
at which they could slip by or bribe the coastal guards. The situa- 
tion worsened; only five of the previously annual fleets were dis- 
patched to Latin America between 1715 and 1736, a circumstance 
that increased contraband operations. 

Panama's temporary loss of its independent audiencia, from 1718 
to 1722, and the country's attachment to the Viceroyalty of Peru 
were probably engineered by powerful Peruvian merchants. They 
resented the venality of Panamanian officials and their ineffective- 
ness in suppressing the pirates (outlaws of no flag, as distinct from 
the buccaneers of the seventeenth century). Panama's weakness 
was further shown by its inability to protect itself against an inva- 
sion by the Miskito Indians of Nicaragua, who attacked from 
Laguna de Chiriquf. Another Indian uprising in the valley of the 
Rio Tuira caused the whites to abandon the Darien. 

The final blow to Panama's shrinking control of the transit trade 
between Latin America and Spain came before the mid-eighteenth 
century. As a provision of the Treaty of Utrecht at the end of the 
War of the Spanish Succession in 1713, Britain secured the right 
to supply African slaves to the Spanish colonies (4,800 a year for 
30 years) and also to send 1 ship a year to Portobelo. The slave 
trade provision evidently satisfied both countries, but the trade in 
goods did not. Smuggling by British ships continued, and a highly 
organized contraband trade based in Jamaica — with the collusion 
of Panamanian merchants — nearly wiped out the legal trade. By 
1739 the importance of the isthmus to Spain had seriously declined; 
Spain again suppressed Panama's autonomy by making the region 
part of the Viceroyalty of New Granada (encompassing present- 
day Colombia, Venezuela, Ecuador, and Panama). 

In the same year, war broke out between Britain and Spain. A 
British military force took Portobelo and destroyed it. Panamanian 
historians maintain that this attack diverted Spanish trade from 
the trans-isthmian route. The Seville-Cadiz monopoly of colonial 
trade had been breached by royal decrees earlier in the century, 
and precedent was thus furnished for the merchants of the Latin 
American colonies to agitate for direct trade with Spain and for 



13 



Panama: A Country Study 



intercolonial trade. After 1740 the Pacific coast ports were permitted 
to trade directly via ships rounding Cape Horn, and the Portobelo 
feria was never held again. 

Relaxing the trading laws benefited both Spanish America and 
Spain, but Panama's economic decline was serious. Transit trade 
had for so long furnished the profits on which Panama had flour- 
ished that there had been no incentive to develop any other eco- 
nomic base. After the suppression of its audiencia in 1751, Panama 
became a quiet backwater, a geographically isolated appendage of 
New Granada, scarcely self-supporting even in food and produc- 
ing little for export. 

In 1793, near the close of the colonial period, the first recorded 
attempt at a comprehensive census of the area that had comprised 
the Panamanian audiencia was made. Incomplete and doubtless omit- 
ting most of the Indian and cimarron population, specifically 
excluding soldiers and priests, the census recorded 71,888 inhab- 
itants, 7,857 of whom lived in Panama City. Other principal towns 
had populations ranging from 2,000 to a little over 5,000. 

Social hierarchy in the colony was rigid. The most prestigious 
and rewarding positions were reserved for the peninsulares , those 
actually born in Spain. Criollos, those of Spanish ancestry but born 
in the colonies, occupied secondary posts in government and trade. 
Mestizos, usually offspring of Hispanic fathers and Indian mothers, 
engaged in farming, retail trade, and the provision of services. Afri- 
can and Indian slaves constituted an underclass. To the extent pos- 
sible, Indians who escaped enslavement avoided Hispanic society 
altogether. 

The church held a special place in society. Priests accompanied 
every expedition and were always counselors to the temporal lead- 
ers. The first bishop on the mainland came with Pedrarias. The 
bishop's authority, received from the king, made him in effect a 
vice governor. The bishopric was moved from Darien to Panama 
City in 1521. The relationship between church and government 
in the colony was closer than in Spain. Both the Roman Catholic 
Church and the monastic orders gained great wealth through tithes 
and land acquisition. 

The Colombia Department 

Independence from Spain 

Lacking communication except by sea, which the Spanish gener- 
ally controlled, Panama remained aloof from the early efforts of 
the Spanish colonies to separate from Spain. Revolutionaries of 
other colonies, however, did not hesitate to use Panama's strategic 



14 




Church of Natd, built in 1522; believed to be the oldest 
church still in use on the mainland of the Americas 

potential as a pawn in revolutionary maneuvers. General Francisco 
Miranda of Venezuela, who had been attracting support for revolu- 
tionary activities as early as 1797, offered a canal concession to 
Britain in return for aid. Thomas Jefferson, while minister to 
France, also showed interest in a canal, but the isolationist poli- 
cies of the new United States and the absorption of energies and 
capital in continental expansion prevented serious consideration. 

Patriots from Cartagena attempted to take Portobelo in 1814 and 
again in 1819, and a naval effort from liberated Chile succeeded 
in capturing the island of Taboga in the Bay of Panama. Panama's 
first act of separation from Spain came without violence. When 
Simon Bolivar's victory at Boyaca on August 7, 1819, clinched the 
liberation of New Granada, the Spanish viceroy fled Colombia for 
Panama, where he ruled harshly until his death in 1821 . His replace- 
ment in Panama, a liberal constitutionalist, permitted a free press 
and the formation of patriotic associations. Raising troops locally, 
he soon sailed for Ecuador, leaving a native Panamanian, Colonel 
Edwin Fabrega, as acting governor. 

Panama City immediately initiated plans to declare indepen- 
dence, but the city of Los Santos preempted the move by pro- 
claiming freedom from Spain on November 10, 1821. This act 
precipitated a meeting in Panama City on November 28, which 
is celebrated as the official date of independence. Considerable 



15 



Panama: A Country Study 

discussion followed as to whether Panama should remain part of 
Colombia (then comprising both the present-day country and 
Venezuela) or unite with Peru. The bishop of Panama, a native 
Peruvian who realized the commercial ties that could be developed 
with his country, argued for the latter solution but was voted down. 
A third possible course of action, a union with Mexico proposed 
by emissaries of that country, was rejected. 

Panama thus became part of Colombia, then governed under 
the 1821 Constitution of Cucuta, and was designated a department 
with two provinces, Panama and Veraguas. With the addition of 
Ecuador to the liberated area, the whole country became known 
as Gran Colombia. Panama sent a force of 700 men to join Boli- 
var in Peru, where the war of liberation continued. 

The termination of hostilities against the royalists in 1824 failed 
to bring tranquillity to Gran Colombia. The constitution that Boli- 
var had drafted for Bolivia was put forward by him to be adopted 
in Gran Colombia. The country was divided principally over the 
proposal that a president would serve for life. The president would 
not be responsible to the legislature and would have power to select 
his vice president. Other provisions, generally centralist in their 
tendencies, were repugnant to some, while a few desired a monar- 
chy. Panama escaped armed violence over the constitutional ques- 
tion but joined other regions in petitioning Bolivar to assume 
dictatorial powers until a convention could meet. Panama 
announced its union with Gran Colombia as a "Hanseatic State," 
i.e., as an autonomous area with special trading privileges, until 
the convention was held. 

In 1826 Bolivar honored Panama when he chose it as the site 
for a congress of the recently liberated Spanish colonies. Many lead- 
ers of the revolutions in Latin America considered the establish- 
ment of a single government for the former Spanish colonies the 
natural follow-up to driving out the peninsulares . Both Jose de San 
Martin and Miranda proposed creating a single vast monarchy 
ruled by an emperor descended from the Incas. Bolivar, however, 
was the one who made the most serious attempt to unite the Span- 
ish American republics. 

Although the league or confederation envisioned by Bolivar was 
to foster the blessings of liberty and justice, a primary purpose was 
to secure the independence of the former colonies from renewed 
attacks by Spain and its allies. In this endeavor Bolivar sought Brit- 
ain's protection. He was reluctant to invite representatives of the 
United States, even as observers, to the congress of plenipoten- 
tiaries lest their collaboration compromise the league's position with 
the British. Furthermore, Bolivar felt that the neutrality of the 



16 



Historical Setting 



United States in the war between Spain and its former colonies 
would make its representation inappropriate. In addition, slavery 
in the United States would be an obstacle in discussing the aboli- 
tion of the African slave trade. Bolivar nevertheless acquiesced when 
the governments of Colombia, Mexico, and Central America (see 
Glossary) invited the United States to send observers. 

Despite the sweeping implications of the Monroe Doctrine, Presi- 
dent John Quincy Adams — in deciding to send delegates to the 
Panama conference — was not disposed to obligate the United States 
to defend its southern neighbors. Adams instructed his delegates 
to refrain from participating in deliberations concerning regional 
security and to emphasize discussions of maritime neutrality and 
commerce. Nevertheless, many members of the United States Con- 
gress opposed participation under any conditions. By the time par- 
ticipation was approved, the delegation had no time to reach the 
conference. The British and Dutch sent unofficial representatives. 

The Congress of Panama, which convened in June and adjourned 
in July of 1826, was attended by four American states — Mexico, 
Central America, Colombia, and Peru. The "Treaty of Union, 
League, and Perpetual Confederation" drawn up at that congress 
would have bound all parties to mutual defense and to the peace- 
ful settlement of disputes. Furthermore, because some feared that 
monarchical elements sympathetic to Spain and its allies might 
regain control of one of the new republics, the treaty included a 
provision that if a member state substantially changed its form of 
government, it would be excluded from the confederation and could 
be readmitted only with the unanimous consent of all other 
members. 

The treaty was ratified only by Colombia and never became 
effective. Bolivar, having made several futile attempts to establish 
lesser federations, declared shortly before his death in 1830 that 
"America is ungovernable; those who served the revolution have 
plowed the sea." Despite his disillusion, however, he did not see 
United States protection as a substitute for collective security 
arrangements among the Spanish-speaking states. In fact, he is 
credited with having said, "The United States seems destined by 
Providence to plague America with misery in the name of Liberty. ' ' 

Three abortive attempts to separate the isthmus from Colom- 
bia occurred between 1830 and 1840. The first was undertaken 
by an acting governor of Panama who opposed the policies of the 
president, but the Panamanian leader reincorporated the depart- 
ment of Panama at the urging of Bolivar, then on his deathbed. 
The second attempted separation was the scheme of an unpopular 
dictator, who was soon deposed and executed. The third secession, 



17 



Panama: A Country Study 

a response to civil war in Colombia, was declared by a popular 
assembly, but reintegration took place a year later. 

The California Gold Rush and the Railroad 

Even before the United States acquired California after the Mexi- 
can War (1846-48), many heading for California used the isth- 
mus crossing in preference to the long and dangerous wagon route 
across the vast plains and rugged mountain ranges. Discovery of 
gold in 1848 increased traffic greatly. In 1847 a group of New York 
financiers organized the Panama Railroad Company. This com- 
pany secured an exclusive concession from Colombia allowing con- 
struction of a crossing, which might be by road, rail, river, or a 
combination. After surveys, a railroad was chosen, and a new con- 
tract so specifying was obtained in 1850. The railroad track fol- 
lowed generally the line of the present canal. The first through train 
from the Atlantic to the Pacific side ran on the completed track 
on January 28, 1855. 

The gold rush traffic, even before the completion of the railroad, 
restored Panama's prosperity. Between 1848 and 1869, about 
375,000 persons crossed the isthmus from the Atlantic to the Pacific, 
and 225,000 crossed in the opposite direction. Prices for food and 
services were greatly inflated, producing enormous profits from 
meals and lodging. 

The railroad also created a new city and port at the Atlantic ter- 
minus of the line. The town that immediately sprang up to accom- 
modate the railroad offices, warehouses, docks, and shops and to 
lodge both railroad workers and passengers soon became, and 
remains, the second largest in the country. United States citizens 
named it Aspinwall, after one of the founders of the Panama Rail- 
road Company, but the Panamanians christened it Colon, in honor 
of Columbus. Both names were used for many years, but because 
the Panamanians insisted that no such place as Aspinwall existed 
and refused to deliver mail so addressed, the name Colon prevailed. 

The gold rush and the railroad also brought the United States 
"Wild West" to the isthmus. The forty-niners tended to be an 
unruly lot, usually bored as they waited for a ship to California, 
frequently drunk, and often armed. Many also displayed prejudice 
verging on contempt for other races and cultures. The so-called 
Watermelon War of 1856, in which at least sixteen persons were 
killed, was the most serious clash of races and cultures of the period. 

In 1869 the first transcontinental railroad was completed in the 
United States. This development reduced passenger and freight 
traffic across the isthmus and diminished the amount of gold and 
silver shipped east. During the height of the gold rush, however, 



18 



Historical Setting 



from 1855 to 1858, only one-tenth of the ordinary commercial 
freight was destined for or originated in California. The balance 
concerned trade of the North Americans with Europe and Asia. 
The railroad company, because of its exceptionally high return on 
a capitalization that never exceeded US$7 million, paid a total of 
nearly US$38 million in dividends between 1853 and 1905. Panama 
received US$25,000 from Colombia's annuity and benefited from 
transient trade and some inflow of capital. 

The Uncompleted French Canal 

Throughout the nineteenth century, governments and private 
investors in the United States, Britain, and France intermittently 
displayed interest in building a canal across the Western Hemi- 
sphere. Several sites were considered, but from the start the ones 
in Nicaragua and Panama received the most serious attention. Presi- 
dent Andrew Jackson sent Charles A. Biddle as his emissary in 
the 1830s to investigate both routes, but the project was aborted 
when Biddle abandoned his government mission and negotiated 
instead with Colombian capitalists for a private concession. 

Nevertheless, Colombia continued to express interest in negotiat- 
ing with the United States on building a canal. The two countries 
signed a treaty in 1846. The treaty removed the existing restric- 
tive tariffs and gave the United States and its citizens the right of 
free transit of persons and goods over any road or canal that might 
be constructed in the isthmus. In addition, the United States 
guaranteed the neutrality of the isthmus and Colombia's sovereignty 
over it, with a view to ensuring uninterrupted transit for the dura- 
tion of the treaty, which was to be twenty years or as long there- 
after as the parties gave no notice to revise it. Called the 
Bidlack-Mallarino Treaty of 1846, it was actually ratified and 
became effective in 1848. 

Because the canal interests of Britain and the United States had 
continued to clash, particularly in Nicaragua, Britain and the 
United States sought to ease tensions by entering into the Clayton- 
Bulwer Treaty of 1850. The governments agreed specifically that 
neither would acquire rights to or construct a Nicaraguan canal 
without the participation of the other. This general principle was 
extended to any canal or railroad across Central America, to include 
the Isthmus of Tehuantepec in Mexico and Panama. In effect, since 
neither government was then willing or able to begin a canal, the 
treaty was for the time an instrument of neutrality. 

Colombia's attempt to attract canal interest finally brought 
French attention to bear on Panama. After several surveys, a con- 
cession of exclusive rights was obtained from Colombia, and a 



19 



Panama: A Country Study 

company was formed in 1879 to construct a sea-level canal gener- 
ally along the railroad route. Ferdinand de Lesseps, of Suez Canal 
fame, headed the company. The terms of the concession required 
completion in twelve years, with the possibility of a six-year exten- 
sion at Colombia's discretion. The lease was for ninety years and 
was transferable, but not to any foreign government. The company 
also purchased most of the stock of the Panama Railroad Company, 
which, however, continued to be managed by Americans. 

A ceremonious commencement of work was staged by de Lesseps 
on January 1, 1880, but serious earth moving did not start until 
the next year. As work progressed, engineers judged that a sea- 
level canal was impracticable. De Lesseps, a promoter but not an 
engineer, could not be convinced until work had gone on for six 
years. Actual labor on a lock canal did not start until late in 1888, 
by which time the company was in serious financial difficulty. At 
the peak of its operations the company employed about 10,000 
workers. 

De Lesseps had to contend not only with enemies who hampered 
financing by spreading rumors of failure and dumping stocks and 
bonds on the market but also with venal French politicians and 
bureaucrats who demanded large bribes for approving the issue 
of securities. His efforts to get the French government to guaran- 
tee his bonds were blocked by the United States, on the grounds 
that such action would lead to government control in violation of 
the Monroe Doctrine. The end result in January 1889 was the 
appointment of a receiver to liquidate the company, whereupon 
all work stopped. 

Despite the French company's disastrous financial experience, 
an estimated two-fifths of the excavation necessary for the eventual 
canal had been completed. Many headquarters and hospital build- 
ings were finished. Some of the machinery left on the site was usa- 
ble later, and the railroad had been maintained. Another legacy 
of the French company's bankruptcy was a large labor force, now 
unemployed, mostly Antillean blacks. More than half were repatri- 
ated, but thousands remained, many of whom eventually worked 
on the United States canal. 

The Spillover from Colombia's Civil Strife 

During the last half of the nineteenth century, violent clashes 
between the supporters of the Liberal and Conservative parties in 
Colombia left the isthmus's affairs in constant turmoil. Local self- 
government for the department of Panama was extended when the 
Liberals were in power and withdrawn when the Conservatives 
prevailed. The Catholic Church was disestablished under the 



20 



Historical Setting 



Liberals and reestablished under the Conservatives. The fortunes 
of local partisans rose and fell abruptly and often violently. 

According to one estimate, the period witnessed forty adminis- 
trations of the Panamanian department, fifty riots and rebellions, 
five attempted secessions, and thirteen interventions by the United 
States, acting under the provisions of the Bidlack-Mallarino Treaty. 
Partisan clashes and foreign intervention exacerbated racial antago- 
nisms and economic problems and intensified grievances against 
the central government of Colombia. 

Between 1863 and 1886, the isthmus had twenty-six presidents. 
Coups d'etat, rebellions, and violence were almost continuous, 
staged by troops of the central government, by local citizens against 
centrally imposed edicts, and by factions out of power. The chaotic 
conditions that had prevailed under the federalist constitution of 
1863 culminated in the 1884 election of Rafael Nunez as president 
of Colombia, supported by a coalition of moderate Liberals and 
Conservatives. Nunez called all factions to participate in a new con- 
stituent assembly, but his request was met by an armed revolt of 
the radical Liberals. 

Early in 1885, a revolt headed by a radical Liberal general and 
centered in Panama City developed into a three-way fight. Colon 
was virtually destroyed. United States forces landed at the request 
of the Colombian government but were too late to save the city. 
Millions of dollars in claims were submitted by companies and 
citizens of the United States, France, and Britain, but Colombia 
successfully pleaded its lack of responsibility. 

Additional United States naval forces occupied both Colon and 
Panama City and guarded the railroad to ensure uninterrupted tran- 
sit until Colombian forces landed to protect the railroad. The new 
constitution of 1886 established the Republic of Colombia as a uni- 
tary state; departments were distinctly subordinate to the central 
government, and Panama was singled out as subject to the direct 
authority of the government. The United States consul general 
reported that three-quarters of the Panamanians wanted indepen- 
dence from Colombia and would revolt if they could get arms and 
be sure of freedom from United States intervention. 

Panama was drawn into Colombia's War of a Thousand Days 
(1899-1902) by rebellious radical Liberals who had taken refuge 
in Nicaragua. As in the rest of Colombia, opinion in Panama was 
divided, and revolts in the southwest had hardly been suppressed 
when Liberals from Nicaragua invaded the Pacific coastal region 
and nearly succeeded in taking Panama City in mid- 1900. The 
fortunes of war varied, and although a local armistice gave sup- 
porters of the Colombian government temporary security in the 



21 



Panama: A Country Study 

Panama City-Colon region, the rebels were in control throughout 
the isthmus. Meanwhile, by early 1902 the rebels had been defeated 
in most of Colombia proper. At that point, the Colombian govern- 
ment asked the United States to intercede and bring about an armi- 
stice in Panama, which was arranged aboard the U.S.S. Wisconsin 
in the Bay of Panama in 1902. 

Throughout the period of turmoil, the United States had retained 
its interest in building a canal through either Nicaragua or Panama. 
An obstacle to this goal was overcome in December 1901 when 
the United States and Britain signed the Hay-Pauncefote Treaty. 
This treaty nullified the provisions of the Clayton-Bulwer Treaty 
of 1850 and signified British acceptance of a canal constructed solely 
by or under the auspices of the United States with guarantees of 
neutrality. 

The United States Protectorate 

The 1903 Treaty and Qualified Independence 

Naval operations during the Spanish- American War (1898-99) 
served to convince President Theodore Roosevelt that the United 
States needed to control a canal somewhere in the Western 
Hemisphere. This interest culminated in the Spooner Bill of 
June 29, 1902, providing for a canal through the isthmus of 
Panama, and the Hay-Herran Treaty of January 22, 1903, under 
which Colombia gave consent to such a project in the form of a 
100-year lease on an area 10 kilometers wide. This treaty, however, 
was not ratified in Bogota, and the United States, determined to 
construct a canal across the isthmus, intensively encouraged the 
Panamanian separatist movement. 

By July 1903, when the course of internal Colombian opposi- 
tion to the Hay-Herran Treaty became obvious, a revolutionary 
junta had been created in Panama. Jose Augustin Arango, an 
attorney for the Panama Railroad Company, headed the junta. 
Manuel Amador Guerrero and Carlos C. Arosemena served on 
the junta from the start, and five other members, all from promi- 
nent Panamanian families, were added. Arango was considered 
the brains of the revolution, and Amador was the junta's active 
leader. 

With financial assistance arranged by Philippe Bunau-Varilla, 
a French national representing the interests of de Lesseps's com- 
pany, the native Panamanian leaders conspired to take advantage 
of United States interest in a new regime on the isthmus. In Octo- 
ber and November 1903, the revolutionary junta, with the protec- 
tion of United States naval forces, carried out a successful uprising 



22 



Historical Setting 



against the Colombian government. Acting, paradoxically, under 
the Bidlack-Mallarino Treaty of 1846 between the United States 
and Colombia — which provided that United States forces could 
intervene in the event of disorder on the isthmus to guarantee 
Colombian sovereignty and open transit across the isthmus — the 
United States prevented a Colombian force from moving across 
the isthmus to Panama City to suppress the insurrection. 

President Roosevelt recognized the new Panamanian junta as 
the de facto government on November 6, 1903; de jure recogni- 
tion came on November 13. Five days later Bunau-Varilla, as the 
diplomatic representative of Panama (a role he had purchased 
through financial assistance to the rebels), concluded the Isthmian 
Canal Convention with Secretary of State John Hay in Washing- 
ton. Bunau-Varilla had not lived in Panama for seventeen years 
before the incident, and he never returned. Nevertheless, while 
residing in the Waldorf-Astoria Hotel in New York City, he wrote 
the Panamanian declaration of independence and constitution and 
designed the Panamanian flag. Isthmian patriots particularly 
resented the haste with which Bunau-Varilla concluded the treaty, 
an effort partially designed to preclude any objections an arriving 
Panamanian delegation might raise. Nonetheless, the Panamani- 
ans, having no apparent alternative, ratified the treaty on Decem- 
ber 2, and approval by the United States Senate came on 
February 23, 1904. 

The rights granted to the United States in the so-called Hay- 
Bunau-Varilla Treaty were extensive. They included a grant "in 
perpetuity of the use, occupation, and control" of a sixteen- 
kilometer-wide strip of territory and extensions of three nautical 
miles into the sea from each terminal "for the construction, main- 
tenance, operation, sanitation, and protection" of an isthmian 
canal. 

Furthermore, the United States was entitled to acquire additional 
areas of land or water necessary for canal operations and held the 
option of exercising eminent domain in Panama City. Within this 
territory Washington gained "all the rights, power, and author- 
ity .. . which the United States would possess and exercise if it 
were the sovereign ... to the entire exclusion" of Panama. 

The Republic of Panama became a de facto protectorate of the 
larger country through two provisions whereby the United States 
guaranteed the independence of Panama and received in return 
the right to intervene in Panama's domestic affairs. For the rights 
it obtained, the United States was to pay the sum of US$10 mil- 
lion and an annuity, beginning 9 years after ratification, of 
US$250,000 in gold coin. The United States also purchased the 



23 



Panama: A Country Study 



rights and properties of the French canal company for US$40 
million. 

Colombia was the harshest critic of United States policy at the 
time. A reconciliatory treaty with the United States providing an 
indemnity of US$25 million was finally concluded between these 
two countries in 1921. Ironically, however, friction resulting from 
the events of 1903 was greatest between the United States and 
Panama. Major disagreements arose concerning the rights granted 
to the United States by the treaty of 1903 and the Panamanian 
constitution of 1904. The United States government subsequently 
interpreted these rights to mean that the United States could exer- 
cise complete sovereignty over all matters in the Canal Zone. 
Panama, although admitting that the clauses were vague and 
obscure, later held that the original concession of authority related 
only to the construction, operation, and defense of the canal and 
that rights and privileges not necessary to these functions had never 
been relinquished. 

Organizing the New Republic 

The provisional governing junta selected when independence was 
declared governed the new state until a constitution was adopted 
in 1904. Under its terms. Amador became Panama's first president. 

The constitution was modeled, for the most part, after that of 
the United States, calling for separation of powers and direct elec- 
tions for the presidency and the legislature, the National Assem- 
blv. The assembly, however, elected three persons to stand in the 
line of succession to the presidency. This provision remained in 
effect until 1946. when a new constitution provided for direct elec- 
tion of the vice president. The new republic was unitary; munici- 
palities were to elect their own officials, but provincial authorities 
were to be appointed by the central government. The most con- 
troversial provision of the constitution was that which gave the 
United States the right to intervene to guarantee Panamanian 
sovereignty and to preserve order. 

A two-party system of Liberals and Conservatives was inherited 
from Colombia, but the party labels had even less precise or ideo- 
logical meaning in Panama than they had in the larger country. 
By the early 1920s, most of the Conservative leaders of the indepen- 
dence generation had died without leaving political heirs. Thus, 
cleavages in the Liberal Party led to a new system of personalistic 
parties in shifting coalitions, none of which enjoyed a mass base. 
Politics remained the exclusive preserve of the oligarchy, which 
tended to be composed of a few wealthy, white families. 



24 



Historical Setting 



Having successfully severed their ties with Colombia, the seces- 
sionists of Panama's central government were soon faced with a 
secessionist problem of their own. The Cuna of the San Bias Islands 
were unwilling to accept the authority of Panama, just as they had 
been unwilling to accept the authority of Colombia or Spain. The 
Panamanian government exercised no administrative control over 
the islands until 1915, when a departmental government was estab- 
lished; its main office was in El Porvenir. At that time, forces of 
the Colonial Police, composed of blacks, were stationed on several 
islands. Their presence, along with a number of other factors, led 
to a revolt in 1925. 

In 1903 on the island of Nargana, Charlie Robinson was elected 
chief. Having spent many years on a West Indian ship, he began 
a "civilizing" program. His cause was later taken up by a num- 
ber of young men who had been educated in the cities on the main- 
land. These Young Turks advocated forcibly removing nose rings, 
substituting dresses for molas (see Glossary), and establishing dance 
halls like those in the cities. They were actively supported by the 
police, who arrested men who did not send their daughters to the 
dance hall; the police also allegedly raped some of the Indian 
women. By 1925 hatred for these modernizers and for the police 
was intense throughout the San Bias Islands. 

The situation was further complicated by the factionalism that 
resulted when Panama separated from Colombia. The leader of 
one of these factions, Simral Coleman, with the help of a sympa- 
thetic American explorer, Richard Marsh, drew up a "declara- 
tion of independence" for the Cuna, and on February 25, 1925, 
the rebellion was underway. During the course of the rebellion, 
about twenty members of the police were killed. A few days later 
a United States cruiser appeared; with United States diplomatic 
and naval officials serving as intermediaries, a peace treaty was 
concluded. The most important outcome of this rebellion against 
Panama was a treaty that in effect recognized San Bias as a semi- 
autonomous territory. 

Building the Canal 

When the United States canal builders arrived in 1904 to begin 
their momentous task, Panama City and Colon were both small, 
squalid towns. A single railroad stretched between the towns, run- 
ning alongside the muddy scars of the abortive French effort. The 
new builders were haunted by the ghosts of de Lesseps's failure and 
of the workers, some 25,000 of whom had died on the project. These 
new builders were able, however, to learn from de Lesseps's mis- 
takes and to build on the foundations of the previous engineering. 



25 



Panama: A Country Study 



The most formidable task that the North Americans faced was that 
of ridding the area of deadly mosquitoes. 

After a couple of false starts under a civilian commission, Presi- 
dent Roosevelt turned the project over to the United States Army 
Corps of Engineers, guided by Colonel George Washington 
Goethals. Colonel William Crawford Gorgas was placed in charge 
of sanitation. In addition to the major killers — malaria and yellow 
fever — smallpox, typhoid, dysentery, and intestinal parasites threat- 
ened the newcomers. 

Because the mosquito carrying yellow fever was found in urban 
areas, Gorgas concentrated his main efforts on the terminal cities. 
"Gorgas gangs" dug ditches to drain standing water and sprayed 
puddles with a film of oil. They screened and fumigated buildings, 
even invading churches to clean out the fonts of holy water. They 
installed a pure water supply and a modern system of sewage dis- 
posal. Goethals reportedly told Gorgas that every mosquito killed 
was costing the United States US$10. "I know, Colonel," Gor- 
gas reportedly replied, "but what if one of those ten-dollar mosqui- 
toes were to bite you?" Gorgas' s work is credited with saving at 
least 71,000 lives and some 40 million days of sickness. The cleaner, 
safer conditions enabled the canal diggers to attract a labor force. 
By 1913 approximately 65,000 men were on the payroll. Most were 
West Indians, although some 12,000 workers were recruited from 
southern Europe. Five thousand United States citizens filled the 
administrative, professional, and supervisory jobs. To provide these 
men with the comforts and amenities to which they were 
accustomed, a paternalistic community was organized in the Canal 
Zone. 

The most challenging tasks involved in the actual digging of the 
canal were cutting through the mountain ridge at Culebra; build- 
ing a huge dam at Gatun to trap the Rio Chagres and form an 
artificial lake; and building three double sets of locks — Gatun Locks, 
Pedro Miguel Locks, and Miraflores Locks — to raise the ships to 
the lake, almost twenty-six meters above sea level, and then lower 
them. On August 15, 1914, the first ship made a complete pas- 
sage through the canal. 

By the time the canal project was completed, its economic impact 
had created a new middle class. In addition, new forms of discrimi- 
nation occurred. Panamanian society had become segregated not 
only by class but by race and national origin as well (see Ethnic 
Groups and Social Organization, ch. 2). Furthermore, United 
States commercial competition and political intervention had 
already begun to generate resentment among Panamanians. 



26 




Excavation for the Panama Canal 
at the Culebra Cut, December 1904 
Courtesy National Archives 



United States Intervention and Strained Relations 

In the very first year of the Hay-Bunau-Varilla Treaty, dissen- 
sion had already arisen over the sovereignty issue. Acting on an 
understanding of its rights, the United States had applied special 
regulations to maritime traffic at the ports of entry to the canal 
and had established its own customs, tariffs, and postal services 
in the zone. These measures were opposed by the Panamanian 
government. 

Mounting friction finally led Roosevelt to dispatch Secretary of 
War William Howard Taft to Panama in November 1904. His visit 
resulted in a compromise agreement, whereby the United States 
retained control of the ports of Ancon and Cristobal, but their 
facilities might be used by any ships entering Panama City and 
Colon. The agreement also involved a reciprocal reduction of tariffs 
and the free passage of persons and goods from the Canal Zone 
into the republic. Compromises were reached in other areas, and 
both sides emerged with most of their grievances blunted if not 
wholly resolved. 

Before the first year of independence had passed, the interven- 
tion issue also complicated relations. Threats to constitutional 
government in the republic by a Panamanian military leader, 



27 



Panama: A Country Study 

General Esteban Huertas, had resulted, at the suggestion of the 
United States diplomatic mission, in disbanding the Panamanian 
army in 1904. The army was replaced by the National Police, whose 
mission was to carry out ordinary police work. By 1920 the United 
States had intervened four times in the civil life of the republic. 
These interventions involved little military conflict and were, with 
one exception, at the request of one Panamanian faction or another. 

The internal dynamics of Panamanian politics encouraged 
appeals to the United States by any currently disgruntled faction 
for intervention to secure its allegedly infringed rights. United States 
diplomatic personnel in Panama also served as advisers to Panama- 
nian officials, a policy resented by nationalists. In 1921 the issue 
of intervention was formally raised by the republic's government. 
When asked for a definitive, written interpretation of the perti- 
nent treaty clauses, Secretary of State Charles Evans Hughes 
pointed to inherent difficulties and explained that the main objec- 
tives of the United States were to act against any threat to the Canal 
Zone or the lives and holdings of non-Panamanians in the two major 
cities. 

Actual intervention took several forms. United States officials 
supervised elections at the request of incumbent governments. To 
protect lives of United States citizens and property in Chiriqui 
Province, an occupation force was stationed there for two years 
over the protests of Panamanians who contended that the right of 
occupation could apply only to the two major cities. United States 
involvement in the 1925 rent riots in Panama City was also widely 
resented. After violent disturbances during October, and at the 
request of the Panamanian government, 600 troops with fixed bayo- 
nets dispersed mobs threatening to seize the city. 

At the end of the 1920s, traditional United States policy toward 
intervention was revised. In 1928 Secretary of State Frank B. 
Kellogg reiterated his government's refusal to countenance illegal 
changes of government. In the same year, however, Washington 
declined to intervene during the national elections that placed 
Florencio H. Arosemena in office. The Arosemena government 
was noted for its corruption. But when a coup d'etat was under- 
taken to unseat Arosemena, the United States once again declined 
to intervene. Though no official pronouncement of a shift in policy 
had been made, the 1931 coup d'etat — the first successful one in 
the republic's history — marked a watershed in the history of United 
States intervention. 

Meanwhile, popular sentiment on both sides calling for revisions 
to the treaty had resulted in the Kellogg- Alfaro Treaty of 1925. 
The United States in this instrument agreed to restrictions on 



28 



Historical Setting 



private commercial operations in the Canal Zone and also agreed 
to a tightening of the regulations pertaining to the official com- 
missaries. At the same time, however, the United States gained 
several concessions involving security. Panama agreed to automatic 
participation in any war involving the United States and to United 
States supervision and control of military operations within the 
republic. These and other clauses aroused strong opposition and, 
amid considerable tumult, the National Assembly on January 26, 
1927, refused to consider the draft treaty. 

The abortive Kellogg- Alfaro Treaty involved the two countries 
in a critical incident with the League of Nations. During the fall 
of 1927, the League Assembly insisted that Panama could not legally 
participate in the proposed arrangement with the United States. 
The assembly argued that an automatic declaration of war would 
violate Panama's obligations under the League Covenant to wait 
three months for an arbitral decision on any dispute before resort- 
ing to war. The discussion was largely academic inasmuch as the 
treaty had already been effectively rejected, but Panama proposed 
that the dispute over sovereignty in the Canal Zone be submitted 
to international arbitration. The United States denied that any issue 
needed arbitration. 

A New Accommodation 

In the late 1920s, United States policymakers noted that nation- 
alist aspirations in Latin America were not producing desired 
results. United States occupation of the Dominican Republic, Haiti, 
and Nicaragua had not spawned exemplary political systems, nor 
had widespread intervention resulted in a receptive attitude toward 
United States trade and investments. As the subversive activities 
of Latin American Nazi and Fascist sympathizers gained momen- 
tum in the 1930s, the United States became concerned about the 
need for hemispheric solidarity. 

The gradual reversal of United States policy was heralded in 1928 
when the Clark Memorandum was issued, formally disavowing the 
Roosevelt Corollary (see Glossary) to the Monroe Doctrine. In his 
inaugural address in 1933, President Franklin D. Roosevelt enun- 
ciated the Good Neighbor Policy. That same year, at the Seventh 
Inter- American Conference in Montevideo, the United States 
expressed a qualified acceptance of the principle of noninterven- 
tion; in 1936 the United States approved this principle without reser- 
vation. 

In the 1930s, Panama, like most countries of the Western world, 
was suffering economic depression. Until that time, Panamanian 
politics had remained a competition among individuals and families 



29 



Panama: A Country Study 



within a gentleman's club — specifically, the Union Club of Panama 
City. The first exception to this succession was Harmodio Arias 
Madrid (unrelated to the aristocratic family of the same name) who 
was elected to the presidency in 1932. A mestizo from a poor family 
in the provinces, he had attended the London School of Econom- 
ics and had gained prominence through writing a book that attacked 
the Monroe Doctrine. 

Harmodio and his brother Arnulfo, a Harvard Medical School 
graduate, entered the political arena through a movement known 
as Community Action (Accion Communal). Its following was 
primarily mestizo middle class, and its mood was antioligarchy and 
anti-Yankee (see Glossary). Harmodio Arias was the first Panama- 
nian president to institute relief efforts for the isolated and impov- 
erished countryside. He later established the University of Panama, 
which became the focal point for the political articulation of middle- 
class interests and nationalistic zeal. 

Thus, a certain asymmetry developed in the trends underway 
in the 1930s that worked in Panama's favor. While the United States 
was assuming a more conciliatory stance, Panamanians were los- 
ing patience, and a political base for virulent nationalism was 
emerging. 

A dispute arose in 1932 over Panamanian opposition to the sale 
of 3.2-percent beer in the Canal Zone competing with Panamanian 
beers. Tension rose when the governor of the zone insisted on for- 
mally replying to the protests, despite the Panamanian govern- 
ment's well-known view that proper diplomatic relations should 
involve only the United States ambassador. In 1933 when unem- 
ployment in Panama reached a dangerous level and friction over 
the zone commissaries rekindled, President Harmodio Arias went 
to Washington. 

The result was agreement on a number of issues. The United 
States pledged sympathetic consideration of future arbitration 
requests involving economic issues that did not affect the vital 
aspects of canal operation. Special efforts were to be made to pro- 
tect Panamanian business interests from the smuggling of cheaply 
purchased commissary goods out of the zone. Washington also 
promised to seek appropriations from Congress to sponsor the 
repatriation of the numerous immigrant canal workers, who were 
aggravating the unemployment situation. Most important, how- 
ever, was President Roosevelt's acceptance, in a joint statement 
with Harmodio Arias, that United States rights in the zone applied 
only for the purposes of "maintenance, operation, sanitation, and 
protection" of the canal. The resolution of this long-standing issue, 
along with a clear recognition of Panama as a sovereign nation, 



30 



Historical Setting 



was a significant move in the direction of the Panamanian interpre- 
tation of the proper United States position in the isthmus. 

This accord, though welcomed in Panama, came too early to 
deal with a major problem concerning the US$250,000 annuity. 
The devaluation of the United States dollar in 1934 reduced its 
gold content to 59.6 percent of its former value. This meant that 
the US$250,000 payment was nearly cut in half in the new devalued 
dollars. As a result, the Panamanian government refused to accept 
the annuity paid in the new dollars. 

Roosevelt's visit to the republic in the summer of 1934 prepared 
the way for opening negotiations on this and other matters. A 
Panamanian mission arrived in Washington in November, and dis- 
cussions on a replacement for the Hay-Bunau-Varilla Treaty con- 
tinued through 1935. On March 2, 1936, Secretary of State Cordell 
Hull and Assistant Secretary of State Sumner Welles joined the 
Panamanian negotiators in signing a new treaty — the Hull-Alfaro 
Treaty — and three related conventions. The conventions regulated 
radio communications and provided for the United States to con- 
struct a new trans-isthmian highway connecting Panama City and 
Colon. 

The treaty provided a new context for relations between the two 
countries. It ended the protectorate by abrogating the 1903 treaty 
guarantee of the republic's independence and the concomitant right 
of intervention. Thereafter, the United States would substitute 
negotiation and purchase of land outside the zone for its former 
rights of expropriation. The dispute over the annuity was resolved 
by agreeing to fix it at 430,000 balboas (the balboa being equiva- 
lent to the devalued dollar), which increased the gold value of the 
original annuity by US$7,500. This was to be paid retroactively 
to 1934 when the republic had begun refusing the payments. 

Various business and commercial provisions dealt with long- 
standing Panamanian complaints. Private commercial operations 
unconnected with canal operations were forbidden in the zone. This 
policy and the closing of the zone to foreign commerce were to pro- 
vide Panamanian merchants with relief from competition. Free 
entry into the zone was provided for Panamanian goods, and the 
republic's customhouses were to be established at entrances to the 
zone to regulate the entry of goods finally destined for Panama. 

The Hull-Alfaro revisions, though hailed by both governments, 
radically altered the special rights of the United States in the 
isthmus, and the United States Senate was reluctant to accept the 
alterations. Article X of the new treaty provided that in the event 
of any threat to the security of either nation, joint measures could 
be taken after consultation between the two. Only after an exchange 



31 



Panama: A Country Study 

of interpretative diplomatic notes had permitted Senator Key Pitt- 
man, chairman of the Foreign Relations Committee, to advise his 
colleagues that Panama was willing under this provision to permit 
the United States to act unilaterally, did the Senate give its con- 
sent on July 25, 1939. 

The Bisected Republic 
The War Years 

After ratifying the Hull-Alfaro Treaty in 1939, Panama and the 
United States began preparation for and collaboration in the com- 
ing war effort. Cooperation in this area proceeded smoothly for 
more than a year, with the republic participating in the series of 
conferences, declarations, and protocols that solidified the support 
of the hemisphere behind Washington's efforts to meet the threat 
of Axis aggression. This cooperation halted with the inauguration 
of Arnulfo Arias. 

Arnulfo Arias was elected to the presidency at least three times 
after 1940 (perhaps four or five if, as many believe, the vote counts 
of 1964 and 1984 were fraudulent), but he was never allowed to 
serve a full term. He was first elected when he headed a mass move- 
ment known as Panamenismo. Its essence was nationalism, which 
in Panama's situation meant opposition to United States hegemony. 
Arias aspired to rid the country of non-Hispanics, which meant 
not only North Americans, but also West Indians, Chinese, Hindus, 
and Jews. He also seemed susceptible to the influence of Nazi and 
Fascist agents on the eve of the United States declaration of war 
against the Axis. 

North Americans were by no means the only ones in Panama 
who were anxious to be rid of Arias. Even his brother, Harmodio, 
urged the United States embassy to move against the leader. United 
States officials made no attempt to conceal their relief when the 
National Police, in October 1941, took advantage of Arias's tem- 
porary absence from the country to depose him. 

Arnulfo Arias had promulgated a new constitution in 1941 , which 
was designed to extend his term of office. In 1945 a clash between 
Arias's successor, Ricardo Adolfo de la Guardia, and the National 
Assembly led to the calling of a constituent assembly that elected 
a new president, Enrique A. Jimenez, and drew up a new consti- 
tution. The constitution of 1946 erased the innovations introduced 
by Arias and restored traditional concepts and structures of gov- 
ernment. 

In preparation for war, the United States had requested 999-year 
leases on more than 100 bases and sites. Arias balked, but ultimately 



32 



Ship passes through the Panama Canal 
at the Gaillard Cut, Cucaracha Slide, June 1921 
Courtesy National Archives 

approved a lease on one site after the United States threatened to 
occupy the land it wanted. De la Guardia proved more accom- 
modating; he agreed to lease the United States 134 sites in the 
republic but not for 999 years. He would extend the leases only 
for the duration of the war plus one year beyond the signing of 
the peace treaty. 

The United States transferred Panama City's water and sewer 
systems to the city administration and granted new economic 
assistance, but it refused to deport the West Indians and other non- 
Hispanics or to pay high rents for the sites. Among the major 
facilities granted to the United States under the agreement of 1942 
were the airfield at Rio Hato, the naval base on Isla Taboga, and 
several radar stations. 

The end of the war brought another misunderstanding between 
the two countries. Although the peace treaty had not entered into 
effect, Panama demanded that the bases be relinquished, resting 
its claim on a subsidiary provision of the agreement permitting 
renegotiation after the cessation of hostilities. Overriding the desire 
of the United States War Department to hold most of the bases 
for an indefinite period, the Department of State took cognizance 
of growing nationalist dissatisfaction and in December 1946 sent 
Ambassador Frank T. Hines to propose a twenty-year extension 



33 



Panama: A Country Study 

of the leases on thirteen facilities. President Jimenez authorized 
a draft treaty over the opposition of the foreign minister and 
exacerbated latent resentment. When the National Assembly met 
in 1947 to consider ratification, a mob of 10,000 Panamanians 
armed with stones, machetes, and guns expressed opposition. Under 
these circumstances the deputies voted unanimously to reject the 
treaty. By 1948 the United States had evacuated all occupied bases 
and sites outside the Canal Zone. 

The upheaval of 1947 was instigated in large measure by univer- 
sity students. Their clash with the National Police on that occa- 
sion, in which both students and policemen were killed, marked 
the beginning of a period of intense animosity between the two 
groups. The incident was also the first in which United States 
intentions were thwarted by a massive expression of Panamanian 
rage. 

The National Guard in Ascendance 

A temporary shift in power from the civilian aristocracy to the 
National Police occurred immediately after World War II. Between 
1948 and 1952, National Police Commander Jose Antonio Remon 
installed and removed presidents with unencumbered ease. Among 
his behind-the-scenes manipulations were the denial to Arnulfo 
Arias of the presidency he apparently had won in 1948, the instal- 
lation of Arias in the presidency in 1949, and the engineering of 
Arias 's removal from office in 1951. Meanwhile, Remon increased 
salaries and fringe benefits for his forces and modernized training 
methods and equipment; in effect, he transformed the National 
Police from a police into a paramilitary force. In the spheres of 
security and public order, he achieved his long-sought goal by trans- 
forming the National Police into the National Guard in 1953 and 
introduced greater militarization into the country's only armed 
force. The missions and functions were little changed by the new 
title, but for Remon, this change was a step toward a national army 
(see Historical Background, ch. 5). 

From several preexisting parties and factions, Remon also 
organized the National Patriotic Coalition (Coalicion Patriotica 
Nacional — CPN). He ran successfully as its candidate for the 
presidency in 1952. Remon followed national tradition by enriching 
himself through political office. He broke with tradition, however, 
by promoting social reform and economic development. His agricul- 
tural and industrial programs temporarily reduced the country's over- 
whelming economic dependence on the canal and the zone. 

Remon's reformist regime was short-lived, however. In 1955 he 
was machine-gunned to death at the racetrack outside Panama City. 



34 



Historical Setting 



The first vice president, Jose Ramon Guizado, was impeached for 
the crime and jailed, but he was never tried, and the motivation 
for his alleged act remained unclear. Some investigators believed 
that the impeachment of Guizado was a smokescreen to distract 
attention from others implicated in the assassination, including 
United States organized crime figure "Lucky" Luciano, dissident 
police officers, and both Arias families. The second vice president, 
Ricardo Arias (of the aristocratic Arias family), served out the 
remainder of the presidential term and dismantled many of 
Remon 's reforms. 

Remon did not live to see the culmination of the major treaty 
revision he initiated. In 1953 Remon had visited Washington to 
discuss basic revisions of the 1936 treaty. Among other things, 
Panamanian officials wanted a larger share of the canal tolls, and 
merchants continued to be unhappy with the competition from the 
nonprofit commissaries in the Canal Zone. Remon also demanded 
that the discriminatory wage differential in the zone, which favored 
United States citizens over Panamanians, be abolished. 

After lengthy negotiations a Treaty of Mutual Understanding 
and Cooperation was signed on January 23, 1955. Under its pro- 
visions commercial activities not essential to the operation of the 
canal were to be cut back. The annuity was enlarged to 
US$1,930,000. The principle of "one basic wage scale for all . . . 
employees ... in the Canal Zone" was accepted and implemented. 
Panama's request for the replacement of the "perpetuity" clause 
by a ninety-nine-year renewable lease was rejected, however, as 
was the proposal that its citizens accused of violations in the zone 
be tried by joint United States-Panamanian tribunals. 

Panama's contribution to the 1955 treaty was its consent to the 
United States occupation of the bases outside of the Canal Zone 
that it had withheld a few years earlier. Approximately 8,000 hect- 
ares of the republic's territory were leased rent-free for 15 years 
for United States military maneuvers. The Rio Hato base, a par- 
ticularly important installation in defense planning, was thus 
regained for the United States Air Force. Because the revisions had 
the strong support of President Ricardo Arias, the National 
Assembly approved them with little hesitation. 

The Politics of Frustrated Nationalism 

The CPN placed another candidate, Ernesto de la Guardia, in 
the presidency in 1956. The Remon government had required par- 
ties to enroll 45,000 members to receive official recognition. This 
membership requirement, subsequently relaxed to 5,000, had 
excluded all opposition parties from the 1956 elections except the 



35 



Panama: A Country Study 

National Liberal Party (Partido Liberal Nacional — PLN), which 
traced its lineage to the original Liberal Party. 

De la Guardia was a conservative businessman and a member 
of the oligarchy. By Panamanian standards, he was by no means 
anti- Yankee (see Glossary), but his administration presided over 
a new low in United States-Panamanian relations. The Egyptian 
nationalization of the Suez Canal in 1956 raised new hopes in the 
republic, because the two canals were frequently compared in the 
world press. Despite Panama's large maritime fleet (the sixth 
greatest in the world), Britain and the United States did not invite 
Panama to a special conference of the major world maritime pow- 
ers in London to discuss Suez. Expressing resentment, Panama 
joined the communist and neutral nations in a rival Suez proposal. 
United States secretary of state John Foster Dulles's unqualified 
statement on the Suez issue on September 28, 1956 — that the 
United States did not fear similar nationalization of the Panama 
Canal because the United States possessed "rights of sovereignty" 
there — worsened matters. 

Panamanian public opinion was further inflamed by a United 
States Department of the Army statement in the summer of 1956 
that implied that the 1955 treaty had not in fact envisaged a total 
equalization of wage rates. The United States attempted to clarify 
the issue by explaining that the only exception to the "equal pay 
for equal labor" principle would be a 25-percent differential that 
would apply to all citizens brought from the continental United 
States. 

Tension mounted in the ensuing years. In May 1958 students 
demonstrating against the United States clashed with the National 
Guard. The violence of these riots, in which nine died, was a fore- 
cast of the far more serious difficulties that followed a year later. 
In November 1959 anti-United States demonstrations occurred dur- 
ing the two Panamanian independence holidays. Aroused by the 
media, particularly by articles in newspapers owned by Harmodio 
Arias, Panamanians began to threaten a "peaceful invasion" of 
the Canal Zone, to raise the flag of the republic there as tangible 
evidence of Panama's sovereignty. Fearful that Panamanian mobs 
might actually force entry into the Canal Zone, the United States 
called out its troops. Several hundred Panamanians crossed barbed- 
wire restraints and clashed with Canal Zone police and troops. A 
second wave of Panamanian citizens was repulsed by the National 
Guard, supported by United States troops. 

Extensive and violent disorder followed. A mob smashed the win- 
dows of the United States Information Agency library. The United 
States flag was torn from the ambassador's residence and trampled. 



36 



Historical Setting 



Aware that public hostility was getting out of hand, political lead- 
ers attempted to regain control over their followers but were unsuc- 
cessful. Relations between the two governments were severely 
strained. United States authorities erected a fence on the border 
of the Canal Zone, and United States citizens residing in the Canal 
Zone observed a voluntary boycott of Panamanian merchants, who 
traditionally depended heavily on these patrons. 

On March 1 , 1960 — Constitution Day — student and labor groups 
threatened another march into the Canal Zone. The widespread 
disorders of the previous fall had had a sobering effect on the political 
elite, who seriously feared that new rioting might be transformed 
into a revolutionary movement against the social system itself. Both 
major coalitions contesting the coming elections sought to avoid 
further difficulties, and influential merchants, who had been hard 
hit by the November 1959 riots, were apprehensive. Reports that 
the United States was willing to recommend flying the republic's 
flag in a special site in the Canal Zone served to ease tensions. Thus, 
serious disorders were averted. 

De la Guardia's administration had been overwhelmed by the 
rioting and other problems, and the CPN, lacking effective oppo- 
sition in the National Assembly, began to disintegrate. Most dis- 
senting factions joined the PLN in the National Opposition Union, 
which in 1960 succeeded in electing its candidate, Roberto Chiari, 
to the presidency. De la Guardia became the first postwar presi- 
dent to finish a full four-year term in office, and Chiari had the 
distinction of being the first opposition candidate ever elected to 
the presidency. 

Chiari attempted to convince his fellow oligarchs that change 
was inevitable. He cautioned that if they refused to accept moder- 
ate reform, they would be vulnerable to sweeping change imposed 
by uncontrollable radical forces. The tradition-oriented deputies 
who constituted a majority in the National Assembly did not heed 
his warning. His proposed reform program was simply ignored. 
In foreign affairs, Chiari' s message to the Assembly on October 1 , 
1961, called for a new revision of the Canal Zone arrangement. 
When Chiari visited Washington from June 12-13, 1962, he and 
President John F. Kennedy agreed to appoint high-level represen- 
tatives to discuss controversies between their countries regarding 
the Canal Zone. The results of the discussions were disclosed in 
a joint communique issued on July 23, 1963. 

Agreement had been reached on the creation of the Bi-National 
Labor Advisory Committee to consider disputes arising between 
Panamanian employees and zone authorities. The United States 
had agreed to withhold taxes from its Panamanian employees to 



37 



Panama: A Country Study 

be remitted to the Panamanian government. Pending congressional 
approval, the United States agreed to extend to Panamanian 
employees the health and life insurance benefits available to United 
States citizens in the zone. 

Several other controversial matters, however, remained unre- 
solved. The United States agreed to increase the wages of Panama- 
nian employees in the zone, but not as much as the Panamanian 
government requested. No agreement was reached in response to 
Panamanian requests for jurisdiction over a corridor through the 
zone linking the two halves of the country. 

Meanwhile, the United States had initiated a new aid program 
for all of Latin America — the Alliance for Progress. Under this 
approach to hemisphere relations, President Kennedy envisioned 
a long-range program to raise living standards and advance social 
and economic development. No regular United States government 
development loans or grants had been available to Panama through 
the late 1950s. The Alliance for Progress, therefore, was the first 
major effort of the United States to improve basic living conditions. 
Panama was to share in the initial, large-scale loans to support self- 
help housing. Nevertheless, pressure for major revisions of the treaties 
and resentment of United States recalcitrance continued to mount. 

The Negotiation of New Treaties 
The 1964 Riots 

Public demonstrations and riots arising from popular resentment 
over United States policies and the overwhelming presence of 
United States citizens and institutions had not been uncommon, 
but the rioting that occurred in January 1964 was uncommonly 
serious. The incident began with a symbolic dispute over the fly- 
ing of the Panamanian flag in the Canal Zone. 

For some time the dispute had been seriously complicated by 
differences of opinion on that issue between the Department of 
Defense and the Department of State. On the one hand, the mili- 
tary opposed accepting a Panamanian flag, emphasizing the stra- 
tegic importance of unimpaired United States control in the Canal 
Zone and the dangerous precedent that appeasement of the rioters' 
demands would set for future United States-Panamanian relations. 
The Department of State, on the other hand, supported the flag 
proposal as a reasonable concession to Panamanian demands and 
a method of avoiding major international embarrassment. Diplo- 
matic officials also feared that the stability of Panamanian politi- 
cal institutions themselves might be threatened by extensive violence 
and mob action over the flag issue. 



38 



Historical Setting 



The United States finally agreed to raise the Panamanian and 
United States flags side by side at one location. The special cere- 
mony on September 21, 1960, at the Shaler Triangle was attended 
by the new governor of the zone, Major General William A. Carter, 
along with all high United States military and diplomatic officers 
and the entire Panamanian cabinet. Even this incident, however, 
which marked official recognition of Panama's "titular" sovereignty, 
was marred when the United States rejected de la Guardia's request 
to allow him to raise the flag personally. De la Guardia, as a retalia- 
tory measure, refused to attend the ceremony and extended invita- 
tions to the presidential reception after the ceremony only to the 
United States ambassador and his senior diplomatic aides; United 
States Canal Zone and military officials were excluded. 

Panamanians remained dissatisfied as their flag appeared at only 
one location in the Canal Zone, while the United States flag flew 
alone at numerous other sites. An agreement was finally reached 
that at several points in the Canal Zone the United States and 
Panamanian flags would be flown side by side. United States citizens 
residing in the Canal Zone were reluctant to abide by this agree- 
ment, however, and the students of an American high school, with 
adult encouragement, on two consecutive days hoisted the Ameri- 
can flag alone in front of their school. 

Word of the gesture soon spread across the border, and on the 
evening of the second day, January 9, 1964, nearly 200 Panama- 
nian students marched into the Canal Zone with their flag. A 
struggle ensued, and the Panamanian flag was torn. After that 
provocation, thousands of Panamanians stormed the border fence. 
The rioting lasted 3 days, and resulted in more than 20 deaths, 
serious injuries to several hundred persons, and more than 
US$2 million of property damage. 

At the outbreak of the fighting, Panama charged the United 
States with aggression. Panama severed relations with the United 
States and appealed to the Organization of American States (OAS) 
and the United Nations (UN). On January 10 the OAS referred 
the case to the Inter- American Peace Committee. When the UN 
Security Council met, United States ambassador Adlai E. Stevenson 
noted that the Inter- American Peace Committee had already sched- 
uled an on-the-spot investigation and urged that the problem be 
considered in the regional forum. A proposal by the Brazilian 
delegate that the president of the Security Council address an appeal 
to the two parties to exercise restraint was agreed on, and the UN 
took no further action. 

The United States had hoped to confine the controversy to the 
Inter- American Peace Committee. But when negotiations broke 



39 



Panama: A Country Study 



down, Panama insisted that the Organ of Consultation under the 
1947 Inter- American Treaty of Reciprocal Assistance (the so-called 
Rio Treaty) be convoked. The OAS Council, acting provisionally 
as the Organ of Consultation, appointed an investigating committee 
consisting of all the members of the Council except the two dispu- 
tants. A joint declaration recommended by the Committee was 
signed by the two countries in April, and diplomatic relations were 
restored. The controversy smoldered for almost a year, however, 
until President Lyndon B. Johnson announced that plans for a new 
canal would be drawn up and that an entirely new treaty would 
be negotiated. 

Negotiations were carried on throughout the first half of the 
presidency of Chiari's successor, Marcos Aurelio Robles. When 
the terms of three draft treaties — concerning the existing lock canal, 
a possible sea-level canal, and defense matters — were revealed in 
1967, Panamanian public reaction was adverse. The new treaties 
would have abolished the resented "in perpetuity" clause in favor 
of an expiration date of December 13, 1999, or the date of the com- 
pletion of a new sea-level canal if that were earlier. Furthermore, 
they would have compensated the Panamanian government on the 
basis of tonnage shipped through the canal, an arrangement that 
could have increased the annuity to more than US$20 million. 

The intensity of Panamanian nationalism, however, was such 
that many contended that the United States should abandon 
involvement in Panama altogether. Proposals for the continued 
United States military bases in the Canal Zone, for the right of 
the United States to deploy troops and armaments anywhere in 
the republic, and for a joint board of nine governors for the zone, 
five of which were to be appointed by the United States, were par- 
ticularly unpopular. Robles initially attempted to defend the terms 
of the drafts. When he failed to obtain treaty ratification and he 
learned that his own coalition would be at a disadvantage in the 
upcoming elections, he declared that further negotiations would 
be necessary. 

The Oligarchy under Fire 

In the mid-1960s, the oligarchy was still tenuously in charge of 
Panama's political system. Members of the middle class, consist- 
ing largely of teachers and government workers, occasionally gained 
political prominence. Aspiring to upper-class stations, they failed 
to unite with the lower classes to displace the oligarchy. Students 
were the most vocal element of the middle class and the group most 
disposed to speak for the inarticulate poor; as graduates, however, 
they were generally co-opted by the system. 



40 



Historical Setting 



A great chasm separated the rural section from the urban popu- 
lation of the two major cities. Only the rural wageworkers, con- 
centrated in the provinces of Bocas del Toro and Chiriqm, appeared 
to follow events in the capital and to express themselves on issues 
of national policy. Among the urban lower classes, antagonism 
between the Spanish speakers and the English- and French-speaking 
blacks inhibited organization in pursuit of common interests. 

Literacy was high — about 77 percent — despite the scarcity of 
secondary schools in the rural areas. Voter turnout also tended to 
be high, despite the unreliability of vote counts. (A popular say- 
ing is "He who counts the votes elects.") Concentration on the 
sins of the United States had served as a safety valve, diverting 
attention from the injustices of the domestic system. 

The multi-party system that existed until the coup d'etat of 1968 
served to regulate competition for political power among the lead- 
ing families. Individual parties characteristically served as the per- 
sonal machines of leaders, whose clients (supporters or dependents) 
anticipated jobs or other advantages if their candidate were suc- 
cessful. Of the major parties competing in the 1960s, only the highly 
factionalized PLN had a history of more than two decades. The 
only parties that had developed clearly identifiable programs were 
the small Socialist Party and the Christian Democratic Party 
(Partido Democrato Cristiano — PDC). The only party with a mass 
base was the Panamefiista Party (Partido Panamenista — PP), the 
electoral vehicle of the erratic former president, Arnulfo Arias. The 
Panamenista Party appealed to the frustrated, but lacked a clearly 
recognizable ideology or program. 

Seven candidates competed in the 1964 presidential elections, 
although only three were serious contenders. Robles, who had 
served as minister of the presidency in Chiari's cabinet, was the 
candidate of the National Opposition Union, comprising the PLN 
and seven smaller parties. After lengthy backstage maneuvers, 
Robles was endorsed by the outgoing president. Juan de Arco 
Galindo, a former member of the National Assembly and public 
works minister and brother-in-law of former President de la 
Guardia, was the candidate of the National Opposition Alliance 
(Alianza Nacional de Oposicion) coalition, comprising seven par- 
ties headed by the CPN. Arnulfo Arias was supported by the PP, 
already the largest single party in the country. 

As usual, the status of the canal was a principal issue in the cam- 
paign. Both the liberal and the CPN coalitions cultivated nation- 
alist sentiment by denouncing the United States. Arias, abandoning 
his earlier nationalistic theme, assumed a cooperative and concilia- 
tory stance toward the United States. Arias attracted lower-class 



41 



Panama: A Country Study 

support by denouncing the oligarchy. The Electoral Tribunal 
announced that Robles had defeated Arias by a margin of more 
than 10,000 votes of the 317,312 votes cast. The CPN coalition 
trailed far behind the top two contenders. Arias supporters, who 
had won a majority of the National Assembly seats, attributed 
Robles' s victory to the "miracle of Los Santos"; they claimed that 
enough corpses voted for Robles in that province to enable him 
to carry the election. 

The problems confronting Robles were not unlike those of his 
predecessors but were aggravated by the consequences of the 1964 
riots. In addition to the hardships and resentments resulting from 
the losses of life and property, the riots had the effect of dramati- 
cally increasing the already serious unemployment in the metropoli- 
tan areas. Despite his nationalistic rhetoric during the campaign, 
the new president was dependent on United States economic and 
technical assistance to develop projects that Chiari's government, 
also with United States assistance, had initiated. Chiari empha- 
sized building schools and low-cost housing. He endorsed a limited 
agrarian-reform program. Like his predecessor, Robles sought to 
increase the efficiency of tax collection rather than raise taxes. 

By 1967 the coalitions were being reshuffled in preparation for 
the 1968 elections. By the time Arias announced his candidacy, 
he had split both the coalitions that had participated in the 1964 
elections and had secured the support of several factions in a coali- 
tion headed by the Panamenista Party. Robles' s endorsement went 
to David Samudio of the PLN. A civil engineer and architect of 
middle-class background, Samudio had served as an assemblyman 
and had held several cabinet posts, including that of finance minister 
under Robles. In addition to the PLN, he was supported by the 
Labor and Agrarian Party (Partido Laborista Agrario — PALA) and 
other splinter groups. (Party labels are deceptive; the PALA, for 
example, had neither an agrarian base nor organized labor sup- 
port.) A PDC candidate, Antonio Gonzalez Revilla, also entered 
the race. 

Because many of Arias' s supporters believed that the 1964 elec- 
tion had been rigged, the principal issue in the 1968 campaign 
became the prospective validity of the election itself. The credibil- 
ity crisis became acute in February 1968 when the president of the 
Electoral Tribunal, a Samudio supporter, closed the central regis- 
tration office in a dispute with the other two members of the 
tribunal, Arias supporters, over electoral procedures. The govern- 
ment brought suit before the Supreme Court for their dismissal, 
on the grounds that each man had a son who was a candidate for 
elective office. Thereupon Gonzalez Revilla, with the backing of 



42 



Historical Setting 



Arias, petitioned the National Assembly to begin impeachment 
proceedings against Robles for illegal interferences in electoral mat- 
ters. Among other issues, Robles was accused of diverting public 
funds to Samudio's campaign. 

The National Assembly met in special session and appointed a 
commission to gather evidence. Robles, in turn, obtained a judg- 
ment from a municipal court that the assembly was acting uncon- 
stitutionally. The National Assembly chose to ignore a stay order 
issued by the municipal court pending the reconvening of the 
Supreme Court on April 1 , and on March 14 it voted for impeach- 
ment. On March 24, the National Assembly found Robles guilty 
and declared him deposed. Robles and the National Guard ignored 
the proceedings, maintaining that they would abide by the deci- 
sion of the Supreme Court when it reconvened. 

The Supreme Court, with only one dissenting vote, ruled the 
impeachment proceedings unconstitutional. The Electoral Tribunal 
subsequently ruled that thirty of the parliamentary deputies involved 
in the impeachment proceedings were ineligible for reelection. 
Robles, with the support of the National Guard, retained the 
presidency. 

The election took place on May 12, 1968, as scheduled, and ten- 
sion mounted over the succeeding eighteen days as the Election 
Board and the Electoral Tribunal delayed announcing the results. 
Finally the Election Board declared that Arias had carried the elec- 
tion by 175,432 votes to 133,887 for Samudio and 11,371 for Gon- 
zalez Revilla. The Electoral Tribunal, senior to the Board and still 
loyal to Robles, protested, but the commander of the National 
Guard, Brigadier General Bolivar Vallarino, despite past animos- 
ity toward Arias, supported the conclusion of the Board. 

Arias took office on October 1 , demanding the immediate return 
of the Canal Zone to Panamanian jurisdiction and announcing a 
change in the leadership of the National Guard. He attempted to 
remove the two most senior officers, Vallarino and Colonel Jose 
Maria Pinilla, and appoint Colonel Bolivar Urrutia to command 
the force. On October 11 the National Guard, for the third time, 
removed Arias from the presidency. With seven of his eight 
ministers and twenty-four members of the National Assembly, Arias 
took refuge in the Canal Zone. 

The Government of Torrijos and the National Guard 

The overthrow of Arias provoked student demonstrations and 
rioting in some of the slum areas of Panama City. The peasants 
in Chiriqui Province battled guardsmen sporadically for several 
months, but the National Guard retained control. Urrutia was 



43 



Panama: A Country Study 

initially arrested but was later persuaded to join in the two-man 
provisional junta headed by Pinilla. Vallarino remained in retire- 
ment. The original cabinet appointed by the junta was rather broad 
based and included several Samudio supporters and one Arias sup- 
porter. After the first three months, however, five civilian cabinet 
members resigned, accusing the new government of dictatorial 
practices. 

The provisional junta moved swiftly to consolidate government 
control. Several hundred actual or potential political leaders were 
arrested on charges of corruption or subversion. Others went into 
voluntary or imposed exile, and property owners were threatened 
with expropriation. The National Assembly and all political par- 
ties were disbanded, and the University of Panama was closed for 
several months while its faculty and student body were purged. 
The communications media were brought under control through 
censorship, intervention in management, or expropriation. 

Pinilla, who assumed the title of president, had declared that 
his government was provisional and that free elections were to be 
scheduled. In January 1969, however, power actually rested in the 
hands of Omar Torrijos and Boris Martinez, commander and chief 
of staff, respectively, of the National Guard. In early March, a 
speech by Martinez promising agrarian reform and other measures 
radical enough to alarm landowners and entrepreneurs provoked 
a coup within the coup. Torrijos assumed full control, and Martinez 
and three of his supporters in the military government were exiled. 

Torrijos stated that "there would be less impulsiveness" in 
government without Martinez. Torrijos did not denounce the pro- 
posed reforms, but he assured Panamanian and United States 
investors that their interests were not threatened. 

Torrijos, now a brigadier general, became even more firmly 
entrenched in power after thwarting a coup attempted by Colonels 
Amado Sanjur, Luis Q. Nentzen Franco, and Ramiro Silvera in 
December 1969. While Torrijos was in Mexico, the three colonels 
declared him deposed. Torrijos rushed back to Panama, gathered 
supporters at the garrison in David, and marched triumphantly 
into the capital. The colonels followed earlier competitors of Tor- 
rijos into exile. Because the governing junta (Colonel Pinilla and 
his deputy, Colonel Urrutia) had not opposed the abortive coup, 
Torrijos replaced them with two civilians, Demetrio B. Lakas, an 
engineer well liked among businessmen, and Arturo Sucre, a law- 
yer and former director of the national lottery. Lakas was desig- 
nated "provisional president," and Sucre was appointed his deputy. 

In late 1969 a close associate of Torrijos announced the forma- 
tion of the New Panama Movement. This movement was originally 



44 



Torrijos in the countryside 



intended to organize peasants, workers, and other social groups and 
was patterned after that of Mexico's Institutional Revolutionary 
Party. No organizational structure was established, however, and 
by 1971 the idea had been abandoned. The government party was 
revived under a different name, the Democratic Revolutionary Party 
(Partido Revolucionario Democratico — PRD) in the late 1970s. 

A sweeping cabinet reorganization and comments of high-ranking 
officials in 1971 portended a shift in domestic policy. Torrijos 
expressed admiration for the socialist trends in the military govern- 
ments of Peru and Bolivia. He also established a mutually sup- 
portive relationship with Cuba's Fidel Castro Ruz. Torrijos 
carefully distanced himself from the Panamanian Marxist left. The 
political label he appeared to wear most comfortably was "popu- 
list." In 1970 he declared, "Having finished with the oligarchy, 
the Panamanian has his own worth with no importance to his origin, 
his cradle, or where he was born." 

Torrijos worked on building a popular base for his government, 
forming an alliance among the National Guard and the various 
sectors of society that had been the objects of social injustice at the 
hands of the oligarchy, particularly the long-neglected campesinos. 
He regularly traveled by helicopter to villages throughout the 
interior to hear their problems and to explain his new programs. 

In addition to the National Guard and the campesinos, the 
populist alliance that Torrijos formed as a power base included 



45 



Panama: A Country Study 

students, the People's Party (Partido del Pueblo — PdP), and por- 
tions of the working classes. Support for Torrijos varied among 
interest groups and over time. The alliance contained groups, most 
notably the National Guard and students, that were traditionally 
antagonistic toward one another and groups that traditionally had 
little concern with national politics, e.g., the rural sector. Nation- 
alism, in the form of support of the efforts of the Torrijos regime 
to obtain control over the canal through a new treaty with the United 
States, provided the glue for maintaining political consensus. 

In the early 1970s, the strength of the alliance was impressive. 
Disloyal or potentially disloyal elements within the National Guard 
and student groups were purged; increased salaries, perquisites, 
and positions of political power were offered to the loyal majority. 
The adherence of the middle classes was procured partly through 
more jobs. In return for its support, the PdP was allowed to oper- 
ate openly when all other political parties were outlawed. 

The Torrijos effort to secure political support in the rural sector 
was an innovation in Panamanian politics. With the exception of 
militant banana workers in the western provinces of Chiriqui and 
Bocas del Toro, the campesinos traditionally have had little con- 
cern with national political issues. Unlike much of Latin America, 
in Panama the elite is almost totally urban based, rather than being 
a landed aristocracy (see Urban Society, ch. 2). 

No elections were held under the military government until April 
1970, when the town of San Miguelito, incorporated as the coun- 
try's sixty-fourth municipal district, was allowed to elect a mayor, 
treasurer, and municipal council. Candidates nominated by trade 
groups and other nonpartisan bodies were elected indirectly by a 
council that had been elected by neighborhood councils. Subse- 
quently, the new system was extended throughout the country, and 
in 1972 the 505-member National Assembly of Municipal Represen- 
tatives met in Panama City to confirm Torrijos' s role as head of 
government and to approve a new constitution. The new docu- 
ment greatly expanded governmental powers at the expense of civil 
liberties. The state also was empowered to "oversee the rational 
distribution of land" and, in general, to regulate or initiate eco- 
nomic activities. In an obvious reference to the Canal Zone, the 
Constitution also declared the ceding of national territory to any 
foreign country to be illegal. 

The governmental initiatives in the economy, legitimated by the 
new Constitution, were already underway. The government had 
announced in early 1969 its intention to implement 1962 legisla- 
tion by distributing 700,000 hectares of land within 3 years to 61 ,300 
families. Acquisition and distribution progressed much more slowly 



46 



Historical Setting 



than anticipated, however (see Land Tenure and Agrarian Reform, 
ch. 3). 

Nevertheless, major programs were undertaken. Primary atten- 
tion and government assistance went to farmers grouped in organi- 
zations that were initially described as cooperatives but were in 
fact commercial farming operations by state-owned firms. The 
government also established companies to operate banana planta- 
tions — partly because a substantial amount of the land obtained 
under the land-reform laws was most suited to banana cultivation 
and had belonged to international fruit companies. 

Educational reforms instituted by Torrijos emphasized vocational 
and technical training at the expense of law, liberal arts, and the 
humanities. The programs introduced on an experimental basis 
in some elementary and secondary schools resembled the Cuban 
system of "basic schools in the countryside." New schools were 
established in rural areas in which half the student's time was 
devoted to instruction in farming. Agricultural methods and other 
practical skills were taught to urban students as well, and ultimately 
the new curriculum was to become obligatory even in private 
schools. Although the changes were being instituted gradually, they 
met strong resistance from the upper-middle classes and particu- 
larly from teachers. 

Far-reaching reforms were also undertaken in health care. A pro- 
gram of integrated medical care became available to the extended 
family of anyone who had been employed for the minimal period 
required to qualify for social security. A wide range of services was 
available not only to the worker's spouse and children, but to par- 
ents, aunts, uncles, cousins — to any dependent relative. Whereas 
in the past medical facilities had been limited almost entirely to 
Panama City, under Torrijos hospitals were built in several provin- 
cial cities. Clinics were established throughout the countryside. 
Medical- school graduates were required to spend at least two years 
in a rural internship servicing the scattered clinics. 

Torrijos also undertook an ambitious program of public works. 
The construction of new roads and bridges contributed particu- 
larly to greater prosperity in the rural areas. Although Torrijos 
showed greater interest in rural development than in urban 
problems, he also promoted urban housing and office construction 
in Panama City. These projects were funded, in part, by both 
increased personal and corporate taxes and increased efficiency in 
tax collection. The 1972 enactment of a new labor code attempted 
to fuse the urban working class into the populist alliance. Among 
other things the code provided obligatory collective agreements, 
obligatory payroll deduction of union fees, the establishment of a 



47 



Panama: A Country Study 

superior labor tribunal, and the incorporation of some 15,000 
additional workers, including street vendors and peddlers, into labor 
unions. At the same time, the government attempted unsuccess- 
fully to unite the nation's three major labor confederations into 
a single, government-sponsored organization. 

Meanwhile, Torrijos lured foreign investment by offering tax 
incentives and provisions for the unlimited repatriation of capital. 
In particular, international banking was encouraged to locate in 
Panama, to make the country a regional financial center. A law 
adopted in 1970 facilitated offshore banking (see Glossary). Numer- 
ous banks, largely foreign owned, were licensed to operate in 
Panama; some were authorized solely for external transactions. 
Funds borrowed abroad could be loaned to foreign borrowers 
without being taxed by Panama (see Finance, ch. 3). 

Most of the reforms benefiting workers and peasants were under- 
taken between 1971 and 1973. Economic problems beginning in 
1973 led to some backtracking on social programs. A new labor 
law passed in 1976, for example, withdrew much of the protection 
provided by the 1972 labor code, including compulsory collective 
bargaining. The causes of these economic difficulties included such 
external factors as the decline in world trade, and thus canal traffic. 
Domestic problems included a decline in agricultural production 
that many analysts attributed to the failure of the economic mea- 
sures of the Torrijos government. The combination of a steady 
decline in per capita gross national product (GNP — see Glossary), 
inflation, unemployment, and massive foreign debts adversely 
affected all sectors of society and contributed heavily to the gradual 
erosion of the populist alliance that had firmly supported Torrijos 
in the early 1970s. 

Increasingly, corruption in governing circles and within the 
National Guard also had become an issue in both national and inter- 
national arenas. Torrijos' s opponents were quick to note that his 
relatives appeared in large numbers on the public payroll. 

The Treaty Negotiations 

During the first two years after the overthrow of Arias, while 
the National Guard consolidated its control of the government and 
Torrijos rooted out his competitors within the National Guard, the 
canal issue was downplayed and generally held in abeyance. By 
1971, however, the negotiation of new treaties had reemerged as 
the primary goal of the Torrijos regime. 

In the 1970s, about 5 percent of world trade, by volume, some 
20 to 30 ships daily, were passing through the canal. Tolls had been 
kept artificially low, averaging a little more than US$10,000 for 



48 



Historical Setting 



the 8- to 10-hour passage, and thus entailing a United States govern- 
ment subsidy. Nevertheless, canal use was declining in the 1970s 
because of alternate routes, vessels being too large to transit the 
canal, and the decline in world trade. 

The canal, nevertheless, was clearly vital to Panama's economy. 
Some 30 percent of Panama's foreign trade passed through the 
canal. About 25 percent of the country's foreign exchange earn- 
ings and 13 percent of its GNP were associated with canal activi- 
ties. The level of traffic and the revenue thereby generated were 
key factors in the country's economic life (see Role of the Canal 
From 1903 to 1977, ch. 3). 

Under the 1903 treaty, the governor of the Canal Zone was 
appointed by the president of the United States and reported to 
the secretary of war. The governor also served as president of the 
Canal Zone Company and reported to a board of directors 
appointed by the secretary of war. United States jurisdiction in 
the zone was complete, and residence was restricted to United States 
government employees and their families. On the eve of the adop- 
tion of new treaties in 1977, residents of the Canal Zone included 
some 40,000 United States citizens, two-thirds of whom were mili- 
tary personnel and their dependents, and about 7,500 Panamani- 
ans. The Canal Zone was, in effect, a United States military outpost 
with its attendant prosperous economy, which stood in stark con- 
trast to the poverty on the other side of its fences. 

By the 1960s military activities in the zone were under the direc- 
tion of the United States Southern Command (SOUTHCOM). 
The primary mission of SOUTHCOM was defending the canal. 
In addition, SOUTHCOM served as the nerve center for a wide 
range of military activities in Latin America, including communi- 
cations, training Latin American military personnel, overseeing 
United States military assistance advisory groups, and conduct- 
ing joint military exercises with Latin American armed forces (see 
United States Forces in Panama, ch. 5). 

Negotiations for a new set of treaties were resumed in June 1971 , 
but little was accomplished until March 1973 when, at the urging 
of Panama, the UN Security Council called a special meeting in 
Panama City. A resolution calling on the United States to negoti- 
ate a "just and equitable" treaty was vetoed by the United States 
on the grounds that the disposition of the canal was a bilateral mat- 
ter. Panama had succeeded, however, in dramatizing the issue and 
gaining international support. 

The United States signaled renewed interest in the negotiations 
in late 1973, when Ambassador Ellsworth Bunker was dispatched 
to Panama as a special envoy. In early 1974, Secretary of State 



49 



Panama: A Country Study 

Henry Kissinger and Panamanian foreign minister Juan Antonio 
Tack announced their agreement on eight principles to serve as 
a guide in negotiating a ' 'just and equitable treaty eliminating once 
and for all the causes of conflict between the two countries." The 
principles included recognition of Panamanian sovereignty in the 
Canal Zone; immediate enhancement of economic benefits to 
Panama; a fixed expiration date for United States control of the 
canal; increased Panamanian participation in the operation and 
defense of the canal; and continuation of United States participa- 
tion in defending the canal. 

American attention was distracted later in 1974 by the Water- 
gate scandal, impeachment proceedings, and ultimately the resig- 
nation of President Richard M. Nixon. Negotiations with Panama 
were accelerated by President Gerald R. Ford in mid- 1975 but 
became deadlocked on four central issues: the duration of the treaty; 
the amount of canal revenues to go to Panama; the amount of ter- 
ritory United States military bases would occupy during the life 
of the treaty; and the United States demand for a renewable 
forty- or fifty-year lease of bases to defend the canal. Panama was 
particularly concerned with the open-ended presence of United 
States military bases and held that the emerging United States posi- 
tion retained the bitterly opposed "perpetuity" provision of the 
1903 treaty and thus violated the spirit of the 1974 Kissinger-Tack 
principles. The sensitivity of the issue during negotiations was illus- 
trated in September 1975 when Kissinger's public declaration that 
"the United States must maintain the right, unilaterally, to defend 
the Panama Canal for an indefinite future" provoked a furor in 
Panama. A group of some 600 angry students stoned the United 
States embassy. 

Negotiations remained stalled during the United States election 
campaign of 1976 when the canal issue, particularly the question 
of how the United States could continue to guarantee its security 
under new treaty arrangements, became a major topic of debate. 
Torrijos replaced Foreign Minister Tack with Aquilino Boyd in 
April 1976, and early the next year Boyd was replaced by Nicolas 
Gonzalez Revilla. Romulo Escobar Bethancourt, meanwhile, 
became Panama's chief negotiator. Panama's growing economic 
difficulties made the conclusion of a new treaty, accompanied by 
increased economic benefits, increasingly vital. 

The new Panamanian negotiating team was thus encouraged by 
the high priority that President Jimmy Carter placed on rapidly 
concluding a new treaty. Carter added Sol Linowitz, former ambas- 
sador to the OAS, to the United States negotiating team shortly 
after taking office in January 1977. Carter held that United States 



50 



Panama Canal treaties signing ceremony, 
September 7, 1977 
Courtesy The White House 

interests would be protected by possessing "an assured capacity 
or capability" to guarantee that the canal would remain open and 
neutral after Panama assumed control. This view contrasted with 
previous United States demands for an ongoing physical military 
presence and led to the negotiation of two separate treaties. This 
changed point of view, together with United States willingness to 
provide a considerable amount of bilateral development aid in addi- 
tion to the revenues associated with Panama's participation in the 
operation of the canal, were central to the August 10, 1977, 
announcement that agreement had been reached on two new 
treaties. 

The 1977 Treaties and Associated Agreements 

On September 7, 1977, Carter and Torrijos met in Washing- 
ton to sign the treaties in a ceremony that also was attended by 
representatives of twenty-six other nations of the Western Hemi- 
sphere. The Panama Canal Treaty, the major document signed 
on September 7, abrogated the 1903 treaty and all other previous 
bilateral agreements concerning the canal. The treaty was to enter 
into force six months after the exchange of instruments of ratifica- 
tion and to expire at noon on December 31 , 1999 (see Appendix B). 
The Panama Canal Company and the Canal Zone government 



51 



Panama: A Country Study 



would cease to operate and Panama would assume complete legal 
jurisdiction over the former Canal Zone immediately, although the 
United States would retain jurisdiction over its citizens during a 
thirty-month transition period. Panama would grant the United 
States rights to operate, maintain, and manage the canal through 
a new United States government agency, the Panama Canal Com- 
mission. The commission would be supervised by a board of five 
members from the United States and four from Panama; the ratio 
was fixed for the duration of the treaty. The commission would 
have a United States administrator and Panamanian deputy admin- 
istrator until January 1, 1990, when the nationalities of these two 
positions would be reversed. Panamanian nationals would consti- 
tute a growing number of commission employees in preparation 
for their assumption of full responsibility in 2000. Another bina- 
tional body, the Panama Canal Consultative Committee, was cre- 
ated to advise the respective governments on policy matters affecting 
the canal's operation. 

Article IV of the treaty related to the protection and defense of 
the canal and mandated both nations to participate in that effort, 
though the United States was to hold the primary responsibility 
during the life of the treaty. The Combined Board, composed of 
an equal number of senior military representatives from each coun- 
try, was established and its members charged with consulting their 
respective governments on matters relating to protection and defense 
of the canal (see Canal Defense, ch. 5). Guidelines for employ- 
ment within the Panama Canal Commission were set forth in Arti- 
cle X, which stipulated that the United States would establish a 
training program to ensure that an increasing number of Panama- 
nian nationals acquired the skills needed to operate and maintain 
the canal. By 1982 the number of United States employees of the 
commission was to be at least 20 percent lower than the number 
working for the Panama Canal Company in 1977. Both nations 
pledged to assist their own nationals who lost jobs because of the 
new arrangements in finding employment. The right to collective 
bargaining and affiliation with international labor organizations 
by commission employees was guaranteed. 

Under the provisions of Article XII, the United States and 
Panama agreed to study jointly the feasibility of a sea-level canal 
and, if deemed necessary, to negotiate terms for its construction. 
Payments to Panama from the commission ("a just and equitable 
return on the national resources which it has dedicated to the . . . 
canal") were set forth in Article XIII. These included a fixed 
annuity of US$10 million, an annual contingency payment of up 
to US$10 million to be paid out of any commission profits, and 



52 



Historical Setting 



US$0.30 per Panama Canal net ton (see Glossary) of cargo that 
passed through the canal, paid out of canal tolls. The latter figure 
was to be periodically adjusted for inflation and was expected to 
net Panama between US$40 and US$70 million annually during 
the life of the treaty. In addition, Article III stipulated that Panama 
would receive a further US$10 million annually for services (police, 
fire protection, street cleaning, traffic management, and garbage 
collection) it would provide in the canal operating areas. 

The second treaty, the Treaty Concerning the Permanent Neu- 
trality and Operation of the Panama Canal, or simply the Neutrality 
Treaty, was a much shorter document. Because it had no fixed 
termination date, this treaty was the major source of controversy 
(see Appendix B). Under its provisions, the United States and 
Panama agreed to guarantee the canal's neutrality "in order that 
both in time of peace and in time of war it shall remain secure and 
open to peaceful transit by the vessels of all nations on terms of 
entire equality." In times of war, however, United States and 
Panamanian warships were entitled to "expeditious" transit of the 
canal under the provisions of Article VI. A protocol was attached 
to the Neutrality Treaty, and all nations of the world were invited 
to subscribe to its provisions. 

At the same ceremony in Washington, representatives of the 
United States and Panama signed a series of fourteen executive 
agreements associated with the treaties. These included two Agree- 
ments in Implementation of Articles III and IV of the Panama 
Canal Treaty that detailed provisions concerning operation, 
management, protection, and defense, outlined in the main treaty. 
Most importantly, these two agreements defined the areas to be 
held by the United States until 2000 to operate and defend the canal. 
These areas were distinguished from military areas to be used jointly 
by the United States and Panama until that time, military areas 
to be held initially by the United States but turned over to Panama 
before 2000, and areas that were turned over to Panama on Octo- 
ber 1, 1979 (see fig. 3). 

One foreign observer calculated that 64 percent of the former 
Canal Zone, or 106,700 hectares, came under Panamanian control 
in 1979; another 18 percent, or 29,460 hectares, would constitute 
the "canal operating area" and remain under control of the Panama 
Canal Commission until 2000; and the remaining 18 percent would 
constitute the various military installations controlled by the United 
States until 2000. The agreements also established the Coordinat- 
ing Committee, consisting of one representative of each country, 
to coordinate the implementation of the agreement with respect 
to Article III of the Panama Canal Treaty, and an analogous Joint 



53 



Panama: A Country Study 




Canal operating area 



J Military areas held by United States until year 2000 but used jointly 
~j Military areas turned over to Panama before year 2000 
~~~] Defense sires held by United States until year 2000 
^ Housing areas for United Sfafes canal employees 

5 10 Kilometers 

I 1 r— 1 1 

5 10 Miles 



Figure 3. Dispensation of Land Within the Former Canal Zone 



Committee to perform the defense-related functions called for in 
the agreement with respect to Article IV of the treaty. 

Ancillary agreements signed on September 7 allowed the United 
States to conduct certain activities in Panama until 2000, includ- 
ing the training of Latin American military personnel at four schools 
located within the former Canal Zone; provided for cooperation 
to protect wildlife within the area; and outlined future United States 
economic and military assistance. This latter agreement, subject 



54 



Historical Setting 



to the availability of congressionally approved funds, provided for 
United States loan guarantees, up to US$75 million over a 5-year 
period, for housing; a US$20-million loan guarantee by the United 
States Overseas Private Investment Corporation for financing 
projects in the Panamanian private sector; loans, loan guarantees, 
and insurance, up to a limit of US$200 million between 1977 and 
1982, provided by the Export-Import Bank of the United States 
for financing Panamanian purchases of United States exports; and 
up to US$50 million in foreign military sales credits over a 10-year 
period. 

The speeches of Carter and Torrijos at the signing ceremony 
revealed the differing attitudes toward the new accords by the two 
leaders. Carter declared his unqualified support of the new treaties. 
The statement by Torrijos was more ambiguous, however. While 
he stated that the signing of the new treaties "attests to the end 
of many struggles by several generations of Panamanian patriots," 
he noted Panamanian criticism of several aspects of the new accords, 
particularly of the Neutrality Treaty: 

Mr. President, I want you to know that this treaty, which 
I shall sign and which repeals a treaty not signed by any 
Panamanian, does not enjoy the approval of all our peo- 
ple, because the 23 years agreed upon as a transition 
period are 8,395 days, because during this time there 
will still be military bases which make my country a stra- 
tegic reprisal target, and because we are agreeing to a 
treaty of neutrality which places us under the protective 
umbrella of the Pentagon. This pact could, if it is not 
administered judiciously by future generations, become 
an instrument of permanent intervention. 

Torrijos was so concerned with the ambiguity of the Neutrality 
Treaty, because of Panamanian sensitivity to the question of United 
States military intervention, that, at his urging, he and President 
Carter signed the Statement of Understanding on October 14, 1977, 
to clarify the meaning of the permanent United States rights. This 
statement, most of which was subsequently included as an amend- 
ment to the Neutrality Treaty and incorporated into its instrument 
of ratification, included a declaration that the United States "right 
to act against any aggression or threat directed against the 
Canal . . . does not mean, nor shall it be interpreted as the right 
of intervention of the United States in the internal affairs of 
Panama." Despite this clarification, the plebiscite that took place 
the next week and served as the legal means of ratification in 
Panama, saw only two-thirds of Panamanians registering their 



55 



Panama: A Country Study 

approval of the new treaties, a number considerably smaller than 
that hoped for by the government. 

Ratification in the United States necessitated the approval of two- 
thirds of the Senate. The debates, the longest in Senate history, 
began on February 7, 1978. The Neutrality Treaty was approved 
on March 16, and the main treaty on April 18, when the debate 
finally ended. To win the necessary sixty-seven Senate votes, Carter 
agreed to the inclusion of a number of amendments, conditions, 
reservations, and understandings that were passed during the Senate 
debates and subsequently included in the instruments of ratifica- 
tion signed by Carter and Torrijos in June. 

Notable among the Senate modifications of the Neutrality Treaty 
were two amendments incorporating the October 1977 Statement 
of Understanding, and interpreting the "expeditious" transit of 
United States and Panamanian warships in times of war as being 
preferential. Another modification, commonly known as the 
DeConcini Condition, stated that "if the Canal is closed, or its 
operations are interfered with [the United States and Panama shall 
each] have the right to take such steps as each deems neces- 
sary, . . . including the use of military force in the Republic of 
Panama, to reopen the Canal or restore the operations of the 
Canal." Modifications of the Panama Canal Treaty included a 
reservation requiring statutory authorization for payments to 
Panama set forth in Article XIII and another stating that any action 
taken by the United States to secure accessibility to the Canal "shall 
not have as its purpose or be interpreted as a right of intervention 
in the internal affairs of the Republic of Panama or interference 
with its political independence or sovereign integrity." Reserva- 
tions attached to both treaties made the United States provision 
of economic and military assistance, as detailed in the ancillary 
agreements attached to the treaties, nonobligatory. 

The inclusion of these modifications, which were never ratified 
in Panama, was received there by a storm of protest. Torrijos 
expressed his concern in 2 letters, the first to Carter and another 
sent to 1 15 heads of state through their representatives at the UN. 
A series of student protests took place in front of the United States 
embassy. The DeConcini Condition was the major object of pro- 
test. Although the reservation to the Panama Canal Treaty was 
designed to mollify Panamanian fears that the DeConcini Condi- 
tion marked a return to the United States gunboat diplomacy of 
the early twentieth century, this provision would expire in 2000, 
whereas the DeConcini Condition, because it was attached to the 
Neutrality Treaty, would remain in force permanently. 



56 



Historical Setting 



Despite his continuing concern with the ambiguity of the treaties 
with respect to the United States role in defense of the canal after 
2000, the close Senate vote made Torrijos aware that he could not 
secure any further modification at that time. On June 16, 1978, 
he and Carter signed the instruments of ratification of each treaty 
in a ceremony in Panama City. Nevertheless, Torrijos added the 
following statement to both Panamanian instruments: "The Repub- 
lic of Panama will reject, in unity and with decisiveness and firm- 
ness, any attempt by any country to intervene in its internal or 
external affairs." The instruments of ratification became effective 
on June 1, 1979, and the treaties entered into force on Octo- 
ber 1, 1979. 

Torrijos Government Undertakes "Democratization" 

Ironically, the successful conclusion of negotiations with the 
United States and the signing of the Panama Canal treaties in 
August 1977 added to the growing political difficulties in Panama. 
Virtually all observers of Panamanian politics in the late 1970s 
agreed that the situation in the late 1970s could only be under- 
stood in terms of the central role traditionally played by national- 
ism in forming Panamanian political consensus. Before August 

1977, opponents of Torrijos were reluctant to challenge his leader- 
ship because of his progress in gaining control over the Canal Zone. 
The signing of the treaties eliminated that restraint; in short, after 
August 1977, Panamanian resentment could no longer be focused 
exclusively on the United States. 

The widespread feeling among Panamanians that the 1977 
treaties were unacceptable, despite their being approved by a two- 
thirds majority in the October 1977 plebiscite, contributed to grow- 
ing opposition to the government. Critics pointed especially to the 
amendments imposed by the United States Senate after the October 
1977 plebiscite, which they felt substantially altered the spirit of 
the treaties. Furthermore, political opponents of Torrijos argued 
that the government purposely limited the information available 
on the treaties and then asked the people to vote "yes" or "no," 
in a plebiscite that the opposition maintained was conducted fraudu- 
lently. 

Another factor contributing to the erosion of the populist alli- 
ance built by Torrijos during the early 1970s was the graduated 
and controlled process of "democratization" undertaken by the 
Torrijos government after signing the new canal treaties. In October 

1978, a decade after the government declared political parties ille- 
gal in the aftermath of the 1968 military coup d'etat, the 1972 Con- 
stitution was reformed to implement a new electoral law and legalize 



57 



Panama: A Country Study 

political parties. In the spirit of opening the political system that 
accompanied the ratification of the Panama Canal treaties, exiled 
political leaders, including former President Arnulfo Arias, were 
allowed to return to the country, and a flurry of political activity 
was evident during the subsequent eighteen months. Foremost 
among the activities were efforts to obtain the 30,000 signatures 
legally required to register a party for the October 1980 elections. 

The 1978 amendments to the 1972 Constitution markedly 
decreased the powers of the executive branch of government and 
increased those of the legislature, but the executive remained the 
dominant branch. From October 1972 until October 1978, Torrijos 
had acted as the chief executive under the titles of head of govern- 
ment and "Maximum Leader of the Panamanian Revolution." 
After the 1978 amendments took effect, Torrijos gave up his posi- 
tion as head of government but retained control of the National 
Guard and continued to play an important role in the government's 
decision-making process. Before stepping down, Torrijos had agreed 
to democratize Panama's political system, in order to gain United 
States support for the canal treaties. In October 1978, the National 
Assembly elected a thirty-eight-year-old lawyer and former edu- 
cation minister, Aristides Royo, to the presidency and Ricardo de 
la Espriella to the vice presidency, each for a six-year term. 

The PRD — a potpourri of middle-class elements, peasant and 
labor groups, and marginal segments of Panamanian society — 
was the first party to be officially recognized under the registra- 
tion process that began in 1979. Wide speculation held that the 
PRD would nominate Torrijos as its candidate for the presiden- 
tial race planned for 1984. Moreover, many assumed that with 
government backing, the PRD would have a substantial advan- 
tage in the electoral process. 

In March 1979, a coalition of eight parties called the National 
Opposition Front (Frente Nacional de Oposicion — FRENO) was 
formed to battle the PRD in the 1980 legislative elections, the first 
free elections to be held in a decade. FRENO was composed of 
parties on both the right and the left of center in the political spec- 
trum, including the strongly nationalistic, anti- Yankee Authentic 
Panamenista Party (Partido Panamefiista Autentico — PPA), which 
was led by the aged but still popular former president, Arnulfo 
Arias; the PLN; the reform-oriented PDC; and the Social 
Democratic Party (Partido Social Democratico — PSD), which was 
left of center and reform-oriented. Three right-of-center parties — the 
Republican Party (Partido Republicano — PR), the Third Nation- 
alist Party, and PALA — had also joined the FRENO coalition. The 
Independent Democratic Movement, a small, moderately left-of- 



58 



Historical Setting 



center party, completed the coalition. Such diverse ideologies in 
the opposition party suggested a marriage of convenience. FRENO 
opposed the Panama Canal treaties and called for their revision 
on terms more favorable to Panama. 

All qualified parties competed in the 1980 legislative elections, 
but these elections posed no threat to Torrijos's power base because 
political parties vied for only nineteen of the fifty-seven seats in 
the legislature. The other two-thirds of the representatives were 
appointed, in essence by Torrijos's supporters. The PRD won 
twelve of the available nineteen seats; the PLN won five seats, and 
the PDC, one. The remaining seat was won by an independent 
candidate running with the support of a communist party, the 
Panamanian People's Party (Partido Panamefio del Pueblo — PPP). 
The PPP had failed to acquire the signatures required for a place 
on the ballot. Despite the lopsided victory of the pro-government 
party and the weakness of the National Legislative Council (bud- 
geting and appropriations were controlled by President Royo, who 
had been handpicked by Torrijos), this election represented a small 
step toward restoring democratic political processes. The election 
also demonstrated that Panama's political party system was too 
fragmented to form a viable united front against the government. 

The Post-Torrijos Era 

Torrijos's Sudden Death 

Omar Torrijos was killed in an airplane crash in western Panama 
on July 31, 1981. His death deprived Central America of a poten- 
tial moderating influence when that region was facing increased 
destabilization, including revolutions in Nicaragua and El Salvador. 
His death also created a power vacuum in his own country and 
ended a twelve-year "dictatorship with a heart," as Torrijos liked 
to call his rule. He was succeeded immediately as National Guard 
commander by the chief of staff, Colonel Florencio Florez Aguilar, 
a Torrijos loyalist. Although Florez adopted a low profile and 
allowed President Royo to exercise more of his constitutional author- 
ity, Royo soon alienated the Torrijos clique, the private sector, 
and the National Guard's general staff, all of whom rejected his 
leadership style and his strongly nationalistic, anti-United States 
rhetoric. Royo had become the leader of leftist elements within the 
government, and he used his position to accuse the United States 
of hundreds of technical violations in the implementation of the 
canal treaties. The general staff considered the National Guard to 
be the country's principal guarantor of national stability and began 
to challenge the president's political authority. Royo attempted to 



59 



Panama: A Country Study 

use the PRD as his power base, but the fighting between leftists 
and conservatives within the party became too intense to control. 
Meanwhile, the country's many and diverse political parties, 
although discontented with the regime, were unable to form a via- 
ble and solid opposition. 

Torrijos had been the unifying influence in Panama's political 
system. He had kept Royo in the presidency, the PRD function- 
ing, and the National Guard united. The groups were loyal to him 
but distrustful of each other. 

Florez completed twenty-six years of military service in March 
1982 and was forced to retire. He was replaced by his own chief 
of staff, General Ruben Dario Paredes, who considered himself 
to be Torrijos' s rightful successor and the embodiment of change 
and unity (Torrijos had been grooming Paredes for political office 
since 1975). In a press interview, Paredes stated that he had become 
"what some people sometimes call a strong man." Without delay 
the new National Guard commander asserted himself in Panama- 
nian politics and formulated plans to run for the presidency in 1984. 
Many suspected that Paredes had struck a deal with Colonel Manuel 
Antonio Noriega Moreno, who had been the assistant chief of staff 
for intelligence since 1970, whereby Noriega would assume com- 
mand of the National Guard and Paredes would become president 
in 1984. Paredes publicly blamed Royo for the rapidly deteriorat- 
ing economy and the pocketing of millions of dollars from the 
nation's social security system by government officials. 

In July 1982, growing labor unrest led to an outbreak of strikes 
and public demonstrations against the Royo administration. 
Paredes, claiming that "the people wanted change," intervened 
to remove Royo from the presidency. With National Guard back- 
ing, Paredes forced Royo and most of his cabinet to resign on 
July 30, 1982, almost one year to the day after the death of Torrijos. 
Royo was succeeded by Vice President Ricardo de la Espriella, 
a United States-educated former banking official. De la Espriella 
wasted no time in referring to the National Guard as a "partner 
in power." 

In August 1982, President de la Espriella formed a new cabinet 
that included independents and members of the Liberal Party and 
the PRD; Jorge Illueca Sibauste, Royo's foreign minister, became 
the new vice president. Meanwhile, Colonel Armando Contreras 
became chief of staff of the National Guard. Colonel Noriega con- 
tinued to hold the powerful position of assistant chief of staff for 
intelligence — the Panamanian government's only intelligence arm. 
In December 1982, Noriega became chief of staff of the National 
Guard. 



60 



Historical Setting 



Noriega Takes Control 

In November 1982, a commission was established to draft a series 
of proposed amendments to the 1972 Constitution. The PRD sup- 
ported the amendments and claimed that they would limit the power 
of the National Guard and help the country return to a fully demo- 
cratic system of government. These amendments reduced the term 
of the president from six to five years, created a second vice 
presidency, banned participation in elections by active members 
of the National Guard, and provided for the direct election of all 
members of the legislature (renamed the Legislative Assembly) after 
nomination by legitimate political parties. These amendments were 
approved in a national referendum held on April 24, 1983, when 
they were considered to be a positive step toward lessening the power 
of the National Guard. In reality, however, the National Guard 
leadership would surrender only the power it was willing to sur- 
render. 

General Paredes, in keeping with the new constitutional provi- 
sion that no active National Guard member could participate in 
an election, reluctantly retired in August 1983. He was succeeded 
immediately by Noriega, who was promoted to brigadier general. 
During the same month, Paredes was nominated as the PRD can- 
didate for president. National elections were only five months away, 
and Paredes appeared to be the leading presidential contender. 
Nevertheless, in early September, President de la Espriella purged 
his cabinet of Paredes loyalists, and Noriega declared that he would 
not publicly support any candidate for president. These events con- 
vinced Paredes that he had no official government or military back- 
ing for his candidacy. He withdrew from the presidential race on 
September 6, 1983, less than a month after retiring from the 
National Guard. Although Paredes subsequently gained the support 
of the Popular Nationalist Party (Partido Nacionalista Popular — 
PNP) and was able to appear on the 1984 ballot, he was no longer 
a major presidential contender. Constitutional reforms notwith- 
standing, the reality of Panamanian politics dictated that no can- 
didate could become president without the backing of the National 
Guard and, especially, its commander. 

With Paredes out of the way, Noriega was free to consolidate 
power. One of his first acts was to have the Legislative Assembly 
approve a bill to restructure the National Guard, which thereafter 
would operate under the name of Panama Defense Forces (Fuerzas 
de Defensa de Panama — FDP). Nominally, the president of the 
republic would head the FDP, but real power would be in the hands 
of Noriega, who assumed the new title of commander in chief of 



61 



Panama: A Country Study 

the FDP (see Missions and Organization of the Defense Forces, 
ch. 5). 

Meanwhile, the PRD — the military- supported party — was left 
without a candidate. To strengthen its base for the upcoming elec- 
tion, the PRD created a coalition of six political parties called the 
National Democratic Union (Union Nacional Democratica — 
UNADE), which included the PALA, PLN, and PR, as well as 
the smaller PP and the left-of-center Broad Popular Front (Frente 
Amplio Popular — FRAMPO). With the approval of the military, 
UNADE selected Nicolas Ardito Barletta Vallarino to be its 
presidential candidate. Ardito Barletta, a University of Chicago- 
trained economist and former minister of planning, had been a 
vice president of the World Bank (see Glossary) for six years before 
his nomination in February 1984. Ardito Barletta was considered 
well qualified for the presidency, but he lacked his own power base. 

Opposing Ardito Barletta and the UNADE coalition was the 
Democratic Opposition Alliance (Alianza Democratica de Oposi- 
cion — ADO) and its candidate, the veteran politician, Arnulfo 
Arias. ADO, formed by the PPA, the PDC, the center-right 
National Liberal Republican Movement (Movimiento Liberal 
Republicano Nacional — MOLIRENA), and an assortment of leftist 
parties, was a diverse coalition made up of rural peasants (espe- 
cially from Arias' s home province of Chiriquf) and lower- and 
middle-class elements that opposed military rule and government 
corruption. During the campaign, Arias emphasized the need to 
reduce military influence in Panamanian politics. He called for the 
removal of the defense bill passed in September 1983, which had 
given the FDP control over all security forces and services. 

The campaign proved to be bitterly contested, with both sides 
predicting victory by a large margin. Arias and his backers claimed 
that Ardito Barletta was conducting the campaign unfairly. Indeed, 
UNADE took advantage of being the pro- government coalition and 
used government vehicles and funds to help conduct its campaign. 
In addition, most of the media — television, radio stations, and 
newspapers — favored the government coalition. For example, only 
one of the country's five daily newspapers supported the ADO. 

Voting day, May 6, 1984, was peaceful. Violence broke out the 
next day between supporters of the two main candidates in front 
of the Legislative Palace, where votes were being counted. One 
person was killed, and forty others were injured. Irregularities and 
errors in the voter registration and in the vote count led to credi- 
ble charges of electoral misconduct and fraud. Thousands of peo- 
ple, who believed that they had registered properly, showed up at 
the polling places only to discover that their names had been 



62 



Historical Setting 



inexplicably left off the voting list. Large-scale vote-buying, espe- 
cially in rural areas, was reported. 

More serious problems developed during the next several days. 
Very few official vote tallies were being delivered from the precinct 
and district levels to the National Board of Vote Examiners, with 
no apparent reason for the delay. The vote count proceeded slowly 
amid a climate of suspicion and rumor. On May 9, the vote tabu- 
lation was suspended. On May 1 1 , the members of the National 
Board of Vote Examiners declared that they could not fulfill their 
function because of 2,124 allegations of fraud, and they turned the 
process over to the Electoral Tribunal. The opposition coalition 
publicized evidence showing that many votes had been destroyed 
before they had been counted. These charges and all subsequent 
challenges by the opposition were rejected by the tribunal, even 
though the head of the three-member tribunal demanded a fur- 
ther investigation into the allegations. The election results were 
made public on May 16. Ardito Barletta won the election with 
300,748 votes; Arias came in second with 299,035; retired General 
Paredes received 15,976. The military-supported candidate had won 
the election, and the threat to the political power of the FDP had 
been circumvented. 

The United States government acknowledged that the election 
results were questionable but declared that Ardito Barletta' s victory 
must be seen as an important forward step in Panama's transition 
to democracy. Relations between the United States and Panama 
worsened later in the year because of Panama's displeasure at the 
alleged slowness with which the United States-controlled Panama 
Canal Commission was replacing American workers with Pana- 
manians. 

The resignation of President Ricardo de la Espriella and his cabi- 
net on February 13, 1984, was barely noticed during the intense 
election campaign. De la Espriella was forced out by Noriega. 
De la Espriella had opposed the military's manipulation of the elec- 
tion and strongly advocated free elections for 1984. During his brief 
tenure, de la Espriella had failed to institute any significant policy 
changes, and his presidency was lackluster. De la Espriella was suc- 
ceeded immediately by Vice President Jorge Illueca, who formed 
a new cabinet. 

Ardito Barletta, a straitlaced and soft-spoken technocrat, took office 
on October 11, 1984. He quickly launched an attack on the coun- 
try's economic problems and sought help from the International 
Monetary Fund (IMF — see Glossary) to refinance part of the coun- 
try's US$3.7-billion debt — the world's highest on a per-capita basis. 
He promised to modernize the government's bureaucracy and 



63 



Panama: A Country Study 

implement an economic program that would create a 5-percent 
annual growth rate. On November 13 — to meet IMF requirements 
for a US$603 -million loan renegotiation — he announced economic 
austerity measures, including a 7-percent tax on all services and 
reduced budgets for cabinet ministries and autonomous govern- 
ment agencies. He revoked some of the measures ten days later 
in response to massive protests and strikes by labor, student, and 
professional organizations. 

Negative popular reaction to Ardito Barletta's efforts to revive 
the country's stagnant economy troubled opposition politicians, 
the military, and many of his own UNADE supporters. Ardito 
Barletta's headstrong administrative style also offended Panama- 
nian politicians who had a customary backslapping and back-room 
style of politicking. Moreover, Arditto Barletta's economic program 
conflicted with the military's traditional use of high government 
spending to keep the poor and the political left placated. 

On August 12, 1985, Noriega stated that the situation in the 
country was "totally anarchic and out of control"; he also criti- 
cized Ardito Barletta for running an incompetent government. 
Observers speculated that another reason — and probably the real 
one — for the ouster of Ardito Barletta was FDP opposition to the 
president's plan to investigate the murder of Dr. Hugo Spadafora, 
a prominent critic of the Panamanian military. Shortly before his 
death, Spadafora had announced that he had evidence linking 
Noriega to drug trafficking and illegal arms dealing. Relatives of 
Spadafora claimed that witnesses had seen him in the custody of 
Panamanian security forces in the Costa Rican border area imme- 
diately before his decapitated body was found on September 14, 
just a few miles north of the Panamanian border. 

Because of uneasiness within the FDP over the Spadafora affair, 
Noriega, using Ardito Barletta's ineffectiveness as an excuse, pres- 
sured Ardito Barletta to resign, which he did on September 27, 
1985, after only eleven months in office. Ardito Barletta was suc- 
ceeded the next day by his first vice president, Eric Arturo Delvalle 
Hennquez, who announced a new cabinet on October 3. 1985. 

A number of good books are available in English dealing with 
various periods of Panamanian history and with the construction 
of the canal and the diplomatic controversies that have arisen. David 
Howarth's Panama provides particularly good coverage of the period 
of conquest and colonization. The most comprehensive account 



64 



Historical Setting 



of Panama's unhappy association with Colombia is found in Alex 
Perez-Venero's Before the Five Frontiers. 

The importance of the canal in Panamanian development is 
explored in the eminently readable and informative The Path Between 
the Seas by David McCullough. A painstakingly thorough study of 
bilateral relations that focuses on the Panama Canal dispute from 
its origin until ratification of the Panama Canal treaties is found 
in U.S. -Panama Relations, 1903-1978 coauthored by David N. 
Farnsworth and James W. McKenney. Detailed information on 
the negotiations and related events leading to the 1977 treaties is 
found in A Chronology of Events Relating to the Panama Canal, prepared 
for the United States Senate Foreign Relations Committee. 

Steve C. Ropp's Panamanian Politics: From Guarded Nation to 
National Guard focuses on Panamanian political history until 1980. 
No detailed studies can be found on Panamanian political develop- 
ments since 1980, but articles authored by Robert F. Drinan, 
Roberto Eisenmann, Jr. , and Robert F. Lamberg are useful. (For 
further information and complete citations, see Bibliography.) 



65 



Chapter 2. The Society and Its Environment 



Cuna Indian mola design of festival musician 



PANAMANIAN SOCIETY OF the 1980s reflected the country's 
unusual geographical position as a transit zone. Panama's role as 
a crossing point had long subjected the isthmus to a variety of out- 
side influences not typically associated with Latin America. The 
population included East Asian, South Asian, European, North 
American, and Middle Eastern immigrants and their offspring, 
who came to Panama to take advantage of the commercial oppor- 
tunities connected with the Panama Canal. Black Antilleans, 
descendants of Caribbean laborers who worked on the construc- 
tion of the canal, formed the largest single minority group; as 
English-speaking Protestants, they were set apart from the majority 
by both language and religion. Tribal Indians, often isolated from 
the larger society, constituted roughly 5 percent of the population 
in the 1980s. They were distinguished by language, their indigenous 
belief systems, and a variety of other cultural practices. 

Spanish-speaking Roman Catholics formed a large majority. 
They were often termed mestizos — a term originally denoting mixed. 
Indian and Spanish parentage that was used in an unrestrictive 
fashion to refer to almost anyone having mixed racial inheritance 
who conformed to the norms of Hispanic culture. 

Ethnicity was broadly associated with class and status, to the 
extent that white elements were more apparent at the top of the 
social pyramid and recognizably black and Indian features at the 
bottom. Members of the elite placed a high value on purported 
racial purity; extensive ties of intermarriage within the group tended 
to reinforce this self-image. 

Class structure was marked by divisions based on wealth, occu- 
pation, education, family background, and culture, in addition to 
race. The roots of the traditional elite's control lay in the colonial 
era. The fundamental social distinction was that between wealthier, 
whiter settlers who managed to purchase political positions from 
the Spanish crown and poorer mestizos who could not. Landhold- 
ing formed the basis for the elite's wealth, political office for their 
power. When the isthmus became more pivotal as a transit zone 
after completion of the canal, elite control became less focused on 
landholding and more concerned with food processing and trans- 
portation facilities. Occasionally a successful immigrant family 
acquired wealth as the decades passed. Nevertheless, the older 
families' control of the country's politics remained virtually intact 
until the 1968 military coup. 



69 



Panama: A Country Study 

The relationship between landowners and tenants or squatters, 
between cattle ranchers and subsistence farmers, was the dynamic 
that underlay social relations in rural Panama in the twentieth cen- 
tury. Cattle ranching had expanded to meet the growing demand 
for meat in cities. Small farmers cleared the tropical forest for cattle 
ranchers, planted it for one to two seasons, and then moved on 
to repeat the process elsewhere. As the population and the demand 
for meat increased, so too did the rate of movement onto previ- 
ously unsettled lands, creating a "moving agricultural frontier." 

Migration, both to cities and to less settled regions in the coun- 
try, was a critical component in contemporary social relations. City 
and countryside were linked because the urban-based elite owned 
ranches or plantations, farmers and ranchers provisioned cities, 
and migration was an experience common to tens of thousands of 
Panamanians. Land and an expanding urban economy were essen- 
tial to absorb surplus labor from heavily populated regions of the 
countryside. It remained to be seen how the social system would 
function in the face of high urban unemployment in the more strait- 
ened economic circumstances of the late 1980s. 

Geography 

Panama is located on the narrowest and lowest part of the Isthmus 
of Panama that links North America and South America. This 
S-shaped part of the isthmus is situated between 7° and 10° north 
latitude and 77° and 83° west longitude. Slightly smaller than South 
Carolina, Panama encompasses approximately 77,082 square 
kilometers, is 772 kilometers in length, and is between 60 and 
177 kilometers in width (see fig. 1). 

Panama's two coastlines are referred to as the Caribbean (or 
Atlantic) and Pacific, rather than the north and south coasts. To 
the east is Colombia and to the west Costa Rica. Because of the 
location and contour of the country, directions expressed in terms 
of the compass are often surprising. For example, a transit of the 
Panama Canal from the Pacific to the Caribbean involves travel 
not to the east but to the northwest, and in Panama City the sun- 
rise is to the east over the Pacific. 

The country is divided into nine provinces, plus the Comarca 
de San Bias, which for statistical purposes is treated as part of Colon 
Province in most official documents. The provincial borders have 
not changed since they were determined at independence in 1903. 
The provinces are divided into districts, which in turn are sub- 
divided into sections called corregimientos . Configurations of the cor- 
regimientos are changed periodically to accommodate population 
changes as revealed in the census reports. 



70 



The Society and Its Environment 



The country's two international boundaries, with Colombia and 
Costa Rica, have been clearly demarcated, and in the late 1980s 
there were no outstanding disputes. The country claims the seabed 
of the continental shelf, which has been defined by Panama to 
extend to the 500-meter submarine contour. In addition, a 1958 
law asserts jurisdiction over 12 nautical miles from the coastlines, 
and in 1968 the government announced a claim to a 200-nautical- 
mile Exclusive Economic Zone. 

The Caribbean coastline is marked by several good natural har- 
bors. However, Cristobal, at the Caribbean terminus of the canal, 
had the only important port facilities in the late 1980s. The numer- 
ous islands of the Archipielago de Bocas del Toro, near the Costa 
Rican border, provide an extensive natural roadstead and shield 
the banana port of Almirante. The over 350 San Bias Islands, near 
Colombia, are strung out for more than 160 kilometers along the 
sheltered Caribbean coastline. 

The major port on the Pacific coastline is Balboa. The principal 
islands are those of the Archipielago de las Perlas in the middle 
of the Gulf of Panama, the penal colony on the Isla de Coiba in 
the Golfo de Chiriqm, and the decorative island of Taboga, a tourist 
attraction that can be seen from Panama City. In all, there are 
some 1,000 islands off the Pacific coast. 

The Pacific coastal waters are extraordinarily shallow. Depths 
of 180 meters are reached only outside the perimeters of both the 
Gulf of Panama and the Golfo de Chiriquf, and wide mud flats 
extend up to 70 kilometers seaward from the coastlines. As a con- 
sequence, the tidal range is extreme. A variation of about 70 cen- 
timeters between high and low water on the Caribbean coast 
contrasts sharply with over 700 centimeters on the Pacific coast, 
and some 130 kilometers up the Rio Tuira the range is still over 
500 centimeters. 

The dominant feature of the country's landform is the central 
spine of mountains and hills that forms the continental divide (see 
fig. 4). The divide does not form part of the great mountain chains 
of North America, and only near the Colombian border are there 
highlands related to the Andean system of South America. The 
spine that forms the divide is the highly eroded arch of an uplift 
from the sea bottom, in which peaks were formed by volcanic 
intrusions. 

The mountain range of the divide is called the Cordillera de 
Talamanca near the Costa Rican border. Farther east it becomes 
the Serrama de Tabasara, and the portion of it closer to the lower 
saddle of the isthmus, where the canal is located, is often called 
the Sierra de Veraguas. As a whole, the range between Costa Rica 



71 



Panama: A Country Study 




72 



The Society and Its Environment 



and the canal is generally referred to by Panamanian geographers 
as the Cordillera Central. 

The highest point in the country is the Volcan Baru (formerly 
known as the Volcan de Chiriquf), which rises to almost 3,500 
meters. The apex of a highland that includes the nation's richest 
soil, the Volcan Baru is still referred to as a volcano, although it 
has been inactive for millennia. 

Nearly 500 rivers lace Panama's rugged landscape. Mostly 
unnavigable, many originate as swift highland streams, meander 
in valleys, and form coastal deltas. However, the Rio Chepo and 
the Rio Chagres are sources of hydroelectric power. 

The Rio Chagres is one of the longest and most vital of the 
approximately 150 rivers that flow into the Caribbean. Part of this 
river was dammed to create Gatun Lake, which forms a major part 
of the transit route between the locks near each end of the canal. 
Both Gatun Lake and Madden Lake (also filled with water from 
the Rio Chagres) provide hydroelectricity for the area of the former 
Canal Zone. 

The Rio Chepo, another major source of hydroelectric power, 
is one of the more than 300 rivers emptying into the Pacific. These 
Pacific-oriented rivers are longer and slower running than those 
of the Caribbean side. Their basins are also more extensive. One 
of the longest is the Rio Tuira, which flows into the Golfo de San 
Miguel and is the nation's only river navigable by larger vessels. 

Panama has a tropical climate. Temperatures are uniformly 
high — as is the relative humidity — and there is little seasonal varia- 
tion. Diurnal ranges are low; on a typical dry-season day in the 
capital city, the early morning minimum may be 24°C and the 
afternoon maximum 29°C. The temperature seldom exceeds 32 °C 
for more than a short time. 

Temperatures on the Pacific side of the isthmus are somewhat 
lower than on the Caribbean, and breezes tend to rise after dusk 
in most parts of the country. Temperatures are markedly cooler 
in the higher parts of the mountain ranges, and frosts occur in the 
Cordillera de Talamanca in western Panama. 

Climatic regions are determined less on the basis of tempera- 
ture than on rainfall, which varies regionally from less than 1.3 
to more than 3 meters per year. Almost all of the rain falls during 
the rainy season, which is usually from April to December, but 
varies in length from seven to nine months. The cycle of rainfall 
is determined primarily by two factors: moisture from the Carib- 
bean, which is transported by north and northeast winds prevail- 
ing during most of the year, and the continental divide, which acts 
as a rainshield for the Pacific lowlands. A third influence that is 



73 



Panama: A Country Study 

present during the late autumn is the southwest wind off the Pacific. 
This wind brings some precipitation to the Pacific lowlands, modi- 
fied by the highlands of the Peninsula de Azuero, which form a 
partial rainshield for much of central Panama. In general, rainfall 
is much heavier on the Caribbean than on the Pacific side of the 
continental divide. The annual average in Panama City is little 
more than half of that in Colon. Although rainy-season thunder- 
storms are common, the country is outside the hurricane track. 

Panama's tropical environment supports an abundance of plants. 
Forests dominate, interrupted in places by grasslands, scrub, and 
crops. Although nearly 40 percent of Panama is still wooded, 
deforestation is a continuing threat to the rain-drenched woodlands. 
Tree cover has been reduced by more than 50 percent since the 
1940s. Subsistence farming, widely practiced from the northeastern 
jungles to the southwestern grasslands, consists largely of corn, 
bean, and tuber plots. Mangrove swamps occur along parts of both 
coasts, with banana plantations occupying deltas near Costa Rica. 
In many places, a multi-canopied rain forest abuts the swamp on 
one side of the country and extends to the lower reaches of slopes 
in the other. 

Population 

Regions of Settlement 

Panama has no generally recognized group of geographic regions, 
and no single set of names is in common use. One system often 
used by Panamanian geographers, however, portrays the country 
as divided into five regions that reflect population concentration 
and economic development as well as geography. 

Darien, the largest and most sparsely populated of the regions, 
extends from the hinterlands of Panama City and Colon to the 
Colombian border, comprising more than one-third of the national 
territory (see fig. 5). In addition to the province of Darien, it 
includes the Comarca de San Bias and the eastern part of Panama 
Province. Darien — a name that was once applied to the entire 
isthmus — is a land of rain forest and swamp. 

The Central Isthmus does not have precisely definable bound- 
aries. Geographically, it is the low saddle of land that bisects the 
isthmus at the canal. It extends on the Pacific side from the Darien 
as far west as the town of La Chorrera. On the Atlantic, it includes 
small villages and clustered farms around Gatun Lake. East of the 
canal it terminates gradually as the population grows sparse, and 
the jungles and swamps of the Darien region begin. More a con- 
cept than a region, the Central Isthmus, with a width of about 



74 



The Society and Its Environment 



100 kilometers, is the densely populated historical transportation 
route between the Atlantic and the Pacific and includes most of 
Colon Province. 

Central Panama lies to the southwest of the canal and is made 
up of all or most of the provinces of Veraguas, Code, Herrera, 
and Los Santos. Located between the continental divide and the 
Pacific, the area is sometimes referred to as the Central Provinces. 
The sparsely populated Santa Fe District of Veraguas Province is 
located across the continental divide on the Atlantic side, however, 
and a frontier part of Code is also on the Atlantic side of the divide. 

The hills and lowlands of Central Panama, dotted with farms 
and ranches, include most of the country's rural population. Its 
heartland is a heavily populated rural arc that frames the Bahfa 
de Parita and includes most of the country's largest market towns, 
including the provincial capitals of Penonome, Santiago, Chitre, 
and Las Tablas. This agriculturally productive area has a relatively 
long dry season and is known as the dry zone of Panama. 

The remaining part of the Pacific side of the divide is taken up 
by Chiriqui Province. Some geographers regard it and Central 
Panama as a single region. But the lowlands of the two areas are 
separated by the hills of the Peninsula de Las Palmas, and the big 
province of Chiriqui has sufficient individuality to warrant con- 
sideration as a separate region. The second largest and second most 
populous of the nine provinces, Chiriqui is to some extent a terri- 
tory of pioneers as well as one of considerable economic impor- 
tance. It is only in Chiriqui that the frontiers of settlement have 
pushed up well into the interior highlands, and the population has 
a particular sense of regional identity. A native of Chiriqui can 
be expected to identify himself, above all, as a Chiricano. 

Atlantic Panama includes all of Bocas del Toro Province, the 
Caribbean coastal portions of Veraguas and Code, and the western 
districts of Colon. It is home to a scant 5 percent of the popula- 
tion, and its only important population concentrations are near the 
Costa Rican border where banana plantations are located. 

Size and Growth 

In mid- 1987, Panama's population was estimated at 2.3 million, 
when 40 percent of the population was under 15 years of age (see 
fig. 6). This high proportion suggested continued pressure on the 
educational system to provide instruction and on the economy to 
create jobs in the next two decades. Population had increased more 
than 600 percent since the country's first census in 1911 (see table 2, 
Appendix A). The annual rate of increase ranged from less than 
0.5 percent in the economically depressed 1920s to more than 



75 



Panama: A Country Study 




The Society and Its Environment 



3 percent in the decade from 1910 to 1920 and in the 1960s. 
Demographers projected an annual growth rate of 2.2 percent in 
the 1980s, declining to 1.9 percent by 1990-95. 

Provincial growth rates in the 1970s ranged from a low of 0.5 per- 
cent in Los Santos to a high of 3.5 percent in Panama (see table 3, 
Appendix A). The population in Bocas del Toro, both in remote 
and rural areas, grew at an average annual rate of approximately 
3.1 percent. This high growth rate was due to a significant influx 
of migrants in response to the development of the Cerro Colorado 
copper project in the eastern part of that province (see Mining, 
ch. 3). Population density was seventy-five persons per square 
kilometer. The highest densities and the region of the most con- 
centrated urbanization were located in the corridor along the former 
Canal Zone from Colon to Panama City. 

The crude death rate was 5 persons per 1 ,000 in the mid-1980s, 
a decline of nearly 50 percent from the mid-1960s. The crude birth 
rate was 27 per 1 ,000, a drop of one-third during the same period. 
Organized family planning began in 1966 with the establishment 
of the Panamanian Family Planning Organization, a private group. 
By 1969 the Ministry of Health was actively involved in family 
planning; clinics, information, and instruction were becoming more 
available to the population as a whole. By the late 1970s and early 
1980s, more than 60 percent of women of childbearing age were 
using some form of contraception. 

Ethnic Groups 

Because the isthmus holds a central position as a transit zone, 
Panama has long enjoyed a measure of ethnic diversity. This diver- 
sity, combined with a variety of regions and environments, has 
given rise to a number of distinct subcultures. But in the late 1980s, 
these subcultures were often diffuse in the sense that individuals 
were frequently difficult to classify as members of one group or 
the other, and statistics about the groups' respective sizes were rarely 
precise. Panamanians nonetheless recognized racial and ethnic dis- 
tinctions and considered them social realities of considerable impor- 
tance. 

Broadly speaking, Panamanians viewed their society as composed 
of three principal groups: the Spanish-speaking, Roman Catholic 
mestizo majority; the English-speaking, Protestant Antillean blacks; 
and tribal Indians. Small numbers of those of foreign extraction — 
Chinese, Jews, Arabs, Greeks, South Asians, Lebanese, West Euro- 
peans, and North Americans — were also present. They generally 
lived in the largest cities, and most were involved in the retail trade 
and commerce. There were a few retired United States citizens — 



77 



Panama: A Country Study 




78 



The Society and Its Environment 



mostly former Canal Zone officials — residing in Chiriqm. The 
Chinese were a major source of labor on the trans-isthmian rail- 
road, completed in the mid-nineteenth century. Most went on to 
California in the gold rush beginning in 1848; of those who 
remained, most owned retail shops. They suffered considerable dis- 
crimination in the early 1940s under the nationalistic government 
of President Arnulfo Arias Madrid, who sought to rid Panama of 
non-Hispanics (see The War Years, ch. 1). 

There were also small groups of Hispanic blacks, blacks (playeros), 
and Hispanic Indians (cholos) along the Atlantic coast lowlands and 
in the Darien. Their settlements, dating from the end of the colonial 
era, were concentrated along coasts and rivers. They had long relied 
on mixed farming and livestock raising, adapted to the particular 
exigencies of the tropical forest environment. In the mid- twentieth 
century, they began marketing small quantities of livestock, tropi- 
cal fruits, rice, and coffee. In the 1980s, they were under pressure 
from the mestizo population, as farmers from the central provinces 
expanded into these previously isolated regions (see Rural Society, 
this ch.). 

Antillean Blacks 

Black laborers from the British West Indies came to Panama by 
the tens of thousands in the first half of the twentieth century. Most 
were involved in the effort to improve the isthmus transportation 
system, but many came to work on the country's banana planta- 
tions as well. By 1910 the Panama Canal Company had employed 
more than 50,000 workers, three-quarters of whom were Antillean 
blacks. They formed the nucleus of a community separated from 
the larger society by race, language, religion, and culture. 

Since World War II, immigration from the Caribbean islands 
has been negligible. Roughly 7 to 8 percent of the population were 
Antillean blacks in the 1980s. Their share in the total population 
was decreasing, as younger generations descended from the origi- 
nal immigrants became increasingly assimilated into the Hispanic 
national society. 

The Antillean community continued to be marked by its immi- 
grant, West Indian origins in the 1980s. Some observers noted that 
Antillean families and gender ideals reflected West Indian patterns 
and that Antillean women were less submissive than their mestizo 
counterparts. The Antilleans were originally united by their per- 
sistent loyalty to the British crown, to which they had owed alle- 
giance in the home islands. Many migrated to Panama with the 
intention of returning home as soon as they had earned enough 
money to permit them to retire. This apparently transient status, 



79 



Panama: A Country Study 

coupled with cultural differences, further separated them from the 
local populace. Another alienating factor was the hostility of His- 
panic Panamanians, which increased as the Antilleans prolonged 
their stay and became entrenched in the canal labor force. They 
faced racial discrimination from North Americans as well. Their 
precarious status was underscored by the fact that the 1941 consti- 
tution deprived them of their Panamanian citizenship (it was 
restored by the 1946 constitution). The hostility they faced welded 
them into a minority united by the cultural antagonisms they con- 
fronted. 

The cleavage between older and younger generations was par- 
ticularly marked. Younger Antilleans who opted for inclusion in 
the Hispanic society at large generally rejected their parents' religion 
and language in so doing. Newer generations educated in Panama- 
nian schools and speaking Spanish well identified with the national 
society, enjoying a measure of acceptance there. Nevertheless, there 
remained substantial numbers of older Antilleans who were trained 
in schools in the former Canal Zone and spoke English as a first 
language. They were adrift without strong ties to either the West 
Indian or the Panamanian Hispanic culture. Isolated from main- 
stream Panamanian society and increasingly removed from their 
Antillean origins, they existed, in a sense, on the margins of three 
societies. 

In common with most middle- and many lower-class Panama- 
nians, Antillean blacks valued education as a means of advance- 
ment. Parents ardently hoped to give their children as good an 
education as possible because education and occupation underlay 
the social hierarchy of the Antillean community. At the top of that 
hierarchy were ministers of the mainline Protestant religions, profes- 
sionals such as doctors and lawyers, and white-collar workers. 
Nonetheless, even a menial worker could hope for respect and some 
social standing if he or she adhered to middle-class West Indian 
forms of marriage and family life, membership in an established 
church, and sobriety. The National Guard, formerly known as the 
National Police and subsequently called the Panama Defense Forces 
(Fuerzas de Defensa de Panama — FDP), served as a means of inte- 
gration into the national society and upward mobility for poorer 
blacks (Antilleans and Hispanics), who were recruited in the 1930s 
and 1940s when few other avenues of advancement were open to 
them (see Manpower, ch. 5). 

Indians 

According to the 1980 census, Panama's indigenous population 
numbered slightly over 93,000, or 5 percent of the total population 



80 



The Society and Its Environment 



(see table 4, Appendix A). Censuses showed Indians to be a declin- 
ing proportion of the total population; they had accounted for nearly 
6 percent of all Panamanians in 1960. The figures were only a rough 
estimate of the numbers of Indians in Panama, however. Precise 
numbers and even the exact status of several smaller tribes were 
uncertain, in part because many Indians were in the process of 
assimilation. Language, although the most certain means of iden- 
tifying a person as an Indian, was by itself an unreliable guide. 
There were small groups of people who spoke only Spanish and 
yet preserved other indigenous practices and were considered 
Indians by their neighbors. The Guaymi, for example, showed little 
concern about linguistic purity and had adopted a wide variety of 
words of Spanish origin; nonetheless, they assiduously preserved 
indigenous religious belief and practice. By contrast, the far more 
acculturated Terraba would not use foreign words, even for non- 
indigenous items. 

The Indian population was concentrated in the more remote 
regions of the country, and for most tribes, isolation was a critical 
element in their cultural survival. The Guaymi, numbering roughly 
50,000 to 55,000, or slightly more than half of the Indian popula- 
tion, inhabited the remote regions of northwest Panama. The Cuna 
(also referred to as the Kuna) were concentrated mainly along the 
Caribbean coast east of Colon; their population was approximately 
30,000, about one-third of all Indians. 

In addition, there were a number of smaller groups scattered 
in the remote mountains of western Panama and the interior of 
Darien. The Choco (or Embera) occupied the southeastern por- 
tion of Darien along the border with Colombia. Most were bilin- 
gual in Spanish and Choco, and they reportedly had intermarried 
extensively with Colombian blacks. They appeared to be in a state 
of advanced acculturation. 

The Bribri were a small section of the Talamanca tribe of Costa 
Rica. They had substantial contact with outsiders. Many were 
employed on banana plantations in Costa Rica, and Protestant mis- 
sionaries were active among them, having made significant num- 
bers of converts. 

The Bokata lived in eastern Bocas del Toro along the Rio Calove- 
bora. Linguistically, Bokata speech was similar to Guaymi, but the 
two languages were not mutually intelligible. The tribe had not 
been as exposed to outsiders as had the Guaymi. In the late 1970s, 
there were virtually no roads through Bokata territory; by the 
mid-1980s, there was a small dirt road passable only in dry weather. 

The Terraba were another small tribe, living in the environs of 
the Rio Teribe. In the twentieth century, the tribe suffered major 



81 



Panama: A Country Study 

population swings. It was decimated by recurrent tuberculosis epi- 
demics between 1910 and 1930, but population expanded rapidly 
with the availability of better medical care after the 1950s. Con- 
tact with outsiders also increased. A Seventh Day Adventist mis- 
sion was active in the tribe for years, and there was substantial 
acculturation with the dominant mestizo culture. By the late 1980s, 
the Terraba had abandoned most of their native crafts production, 
and their knowledge of the region's natural history was declining. 
They even looted their ancestral burial mounds for gold to sell. 
They refused employment on nearby banana plantations until the 
early 1970s, when a flood swept away most of the alluvial soil they 
had farmed. The Guaymf attempted to include the Terraba in 
Guaymf territory, but the Terraba stoutly resisted these efforts. 

All of the tribes were under the jurisdiction of both the provin- 
cial and national governments. The Indigenous Policy Section of 
the Ministry of Government and Justice bore primary responsi- 
bility for coordinating programs that affected Indians, serving as 
a liaison between the tribes and the national government. There 
were a number of special administrative arrangements made for 
those districts in which Indians constituted the majority of the popu- 
lation. The 1972 Constitution required the government to estab- 
lish reserves (comarcas) for indigenous tribes, but the extent to which 
this mandate had been implemented varied. By the mid-1980s, the 
Cuna were established in the Comarca de San Bias and the Choco 
had government approval for official recognition of their own comarca 
in Darien. The Guaymf and the government continued negotia- 
tions about the extent of Guaymf territory. The Guaymf contended 
that government proposals would leave about half the tribe out- 
side the boundaries of the reserve. 

Indian education has frequently been under the de facto control 
of missionaries. The national government made a late entry into 
the field, but by the late 1970s there were nearly 200 Indian schools 
with nearly 15,000 students. Nevertheless, illiteracy among Indi- 
ans over 10 years of age was almost 80 percent, in comparison with 
less than 20 percent in the population at large. 

Cuna 

The vast majority of Cuna Indians inhabited the San Bias Islands, 
with an estimated 3,000 additional Cuna living in small scattered 
settlements in Darien and in Colombia. The San Bias Islands are 
clusters of small coral islands, each only a few feet above sea level, 
along Panama's northeast coast. They contain some fifty densely 
settled Cuna villages. The density of settlement was one indica- 
tion of a dramatic increase in population. Official census figures 



82 



San Bias Cuna Indian villages 
Courtesy Organization of American States 



83 



Panama: A Country Study 



showed a population increase of nearly 60 percent between 1950 
and 1980. The 1980 census revealed that village size ranged from 
37 to nearly 1,500 inhabitants; half the total population was 
accounted for in 19 villages ranging in population from 300 to 1 ,000, 
with one-third in settlements of more than 1 ,000. The census seri- 
ously undercounted the total Cuna population, however, because 
it excluded absent workers, whose numbers were significant, given 
the prevalence of out-migration for wage labor. 

Before settling on the San Bias Islands, the Cuna lived in inland 
settlements concentrated on rivers and streams throughout the 
Darien. Their contacts with outsiders were confined to trade with 
pirates and limited interaction with two abortive European colo- 
nies attempted in the region in the late seventeenth and early eigh- 
teenth centuries. Then, a 1787 treaty with Spain began roughly 
a century of profitable trade, and the Cuna specialized in coconut 
farming, which continues to produce their main cash crop. Pres- 
sure from mestizo and Choco Indians migrating into the Darien 
from Colombia toward the end of the nineteenth century gradu- 
ally pushed the Cuna toward the coast and the villages they still 
occupied in the late 1980s. 

The Cuna's contact with outsiders remained limited and circum- 
scribed until around 1910. Panamanian settlement was focused 
along the isthmus, and the Colombian government was, in every 
significant sense, very distant. Although the Cuna themselves traded 
with passing ships, they did not permit the crews to debark. An 
individual Cuna might, however, serve a stint as a sailor, and 
groups would take a large canoe full of trading goods to Colon. 

The Cuna were extensively dependent on outside sources for 
goods — indigenously produced items played little role in farming 
and fishing. In contrast to many rural mestizos and Indians else- 
where in Panama, the terms on which they bought outside manufac- 
tures were relatively favorable. The Cuna dealt only in cash; they 
bought from many suppliers; and Cuna themselves owned retail 
stores in San Bias. 

By the early years of the twentieth century, the modern settle- 
ment pattern of the San Bias Cuna was well defined. Settlements 
varied in scale from temporary working camps of one to two fami- 
lies to permanent communities numbering in the hundreds. Social 
life then, as now, was organized around the twin foci of household 
and village. Descent was reckoned bilaterally, individuals tracing 
their ancestors and their progeny through both males and females. 
The household was the most significant grouping of kin. A 1976 
survey found that households numbered on average 9.9 persons, 
with multiple family households the rule. Larger groupings of kin 



84 



The Society and Its Environment 



had no formal role in social relations. Adult siblings were rarely 
close, and contacts between more distant relatives, such as cousins, 
were even more diffuse. 

Cuna households, in their ideal form, were composed of a senior 
couple, their unmarried children, and their married daughters and 
sons-in-law and their offspring. The head of the household directed 
the work of those residing there; a son-in-law's position was 
extremely subordinate, particularly during the early years of his 
marriage. After several years of marriage, husbands usually tried 
to establish their own households, but the shortage of suitable land 
made this difficult. 

Women were a major force in household decisions. Their sew- 
ing and household activities were respected work. Men dominated 
the public-political sphere of Cuna life, however, and women were 
overwhelmingly subordinate to men outside their homes. Only a 
few women had been elected to public office, but daughters of lead- 
ers sometimes held government appointments. 

Politics and kinship were separate aspects of Cuna life. Kin, even 
close relatives, did not necessarily support one another on specific 
issues. Although the children of past leaders enjoyed some advan- 
tage in pursuing a career in politics, kinship did not define succes- 
sion to political office. 

Villages had formal, ranked elective political offices, including 
the chiefs and the chiefs' spokespersons (also known as interpreters). 
Most communities also had a set of committees charged with specific 
tasks. Chiefs (except in the most acculturated communities where 
the chiefs did not sing) derived their authority from their knowledge 
of the sacred chants, and the spokespersons derived theirs from 
their ability to interpret the chants for the people. Elected officials 
conducted elaborate meetings dealing with both religious and secular 
affairs. The number of officials, the presence or absence of a spe- 
cifically designated meeting place, and the number and complexity 
of the meetings themselves were all measures of a village's stature. 

Meetings or gatherings fell into two categories: chanting or sing- 
ing gatherings attended by all members of a village and talking 
gatherings attended by adult men only. Singing gatherings were 
highly formalized, combining both indigenous and Spanish ele- 
ments. The ritualized dialogue that chiefs chanted to their follow- 
ers was common Indian practice throughout much of Latin 
America. Much of the actual vocabulary reflected Spanish influence. 
For example, the Cuna word for chiefs spokesperson, arkar, is prob- 
ably a corruption of the Spanish, alcalde. 

Talking gatherings focused on exchanging information and taking 
care of matters that demanded action — relating travel experiences, 



85 



Panama: A Country Study 

requesting permission to leave, or resolving disputes, for example. 
Resolution was reached through consensus in a gradual process 
directed by the chief or chiefs. Votes were rarely taken, and then 
only in the more acculturated communities. Agreement was evident 
when no further contrary opinions were stated. Historically, if an 
agreement could not be reached, the community would split up. 

Cuna also held general congresses as frequently as several times 
per year. Each village sent a delegation; the size varied but typi- 
cally at least one chief and a chief's spokesperson were included. 
The rules of procedure were highly formalized. As with local gather- 
ings, the emphasis was on reaching a consensus of the group rather 
than acquiring the votes necessary for a majority. And, again, agree- 
ment was evident when no further contrary opinions were stated 
or when they were shouted down by the rest of the delegates. 

Villages had considerable discretionary powers, and they regu- 
lated who could settle there. Most refused to accept Colombian 
Cuna displaced by cattle ranchers. Others expressed disapproval 
of landless San Blasinos (residents of San Bias) from other villages 
marrying into their village. The power of villages to grant or with- 
hold travel permits was used as a sanction against misconduct and 
a weapon in political disputes. Women were rarely permitted to 
travel outside San Bias, and until the mid-1960s, many villages 
required an absentee worker to come home for harvest and plant- 
ing or pay for a substitute. 

Villages varied in their willingness to accept innovations. In 
general, the Cuna of eastern San Bias were more conservative, while 
those of the western and central parts more readily accepted out- 
side influences. Modernist villages sent more workers to the larger 
society; conservative communities tended to rely more extensively 
on agricultural income for their livelihood. Village politics were 
concerned with questions of inheritance, boundary disputes, land 
sales, and property theft. 

Land was privately held. As population increased, landholding 
and inheritance were more critical. In theory, all children had an 
equal right to inherit their parents' fields. In practice, though, most 
land passed from father to son. Sons, after fulfilling the labor obli- 
gations to their in-laws, farmed with their fathers. 

Some coconut groves were held in common by the descendants 
of the original owner; common ownership gave these groups of 
descendants a strategic importance in controlling resources. Coop- 
erative societies played a significant role in various economic 
ventures and had a major impact on coconut production, trans- 
porting, and selling. 



86 



The Society and Its Environment 



Slash-and-burn farming on uninhabited islands and the main- 
land was the major economic activity, providing most subsistence. 
Bananas were the primary subsistence crop; coconuts, the main 
cash crop. Sources of nonagricultural income included migrant wage 
labor, the sale of hand-sewn items by Cuna women, and tourism. 
Most of the tourists were day visitors, but there were several resorts 
in the San Bias Islands owned by Cuna, United States citizens, 
and Panamanians. The Cuna also owned retail stores on the San 
Bias Islands. 

Migrant wage labor was the most common source of nonfarm 
income. The Cuna have a long history as migrant laborers, begin- 
ning with their service as sailors on passing ships in the nineteenth 
century. In the early decades of the twentieth century, Cuna did 
short stints in Panama City, Colon, and on banana plantations. 
Later they worked in the Canal Zone. The United Fruit Company 
banana plantations in Changuinola and Almirante were frequent 
destinations for Cuna. The company viewed the Cuna as exem- 
plary employees, and a few were promoted to managerial or semi- 
managerial positions as of the late 1980s. Migrant labor was a part 
of the experience of almost every young male Cuna in his late teens 
or early twenties. In contrast with most of rural Panama, however, 
women left San Bias very infrequently. A mid-1970s survey found 
that less than 4 percent of San Bias women of all ages were living 
away. 

Missionary activity among the Cuna began with the Roman 
Catholics in 1907 and Protestant denominations in 1913. Non- 
Panamanian Protestants were banned in 1925. A small Baptist mis- 
sion returned with legal guarantees of freedom of confession in the 
1950s. The presence of missionaries was a bone of contention 
between modernist and traditional Cuna for decades. Christianity 
spread unevenly through the archipelago, and the San Blasinos often 
resisted it tenaciously. Converts were often lax in their adherence 
to the new creeds; indigenous belief and practice remained promi- 
nent. The Baptist mission, noted one anthropologist, was "thor- 
oughly Kuna-ized." 

Ritual was a major focus of Cuna concern and a significant part 
of the relations between non-kin. It formed the basis for commu- 
nity solidarity and esprit. A man gained prestige through his 
mastery of rituals and chants. Virtually the entire village took part 
in female puberty rites, which were held several times each year; 
much social interaction followed ritualized patterns closely. 

Lavish sharing was an esteemed virtue; stinginess was disparaged. 
Thus, the Cuna continued to celebrate community solidarity 
through feasting, gift giving, and ritual. The community offered 



87 



Panama: A Country Study 

food to visitors and entertained at public expense. The plethora 
of celebrations in the Cuna calendar offered ample occasions to 
display their generosity. 

Many Cuna recognized the value of literacy, and schools had 
a long history in the archipelago. In the nineteenth century, some 
Cuna learned to read and write during periods of migrant labor. 
By the early 1900s, there were a few primary schools in San Bias. 
There was some resistance among the more conservative elements 
in Cuna society, but in general education encountered far less 
opposition than did missionaries' proselytizing. In the 1980s, most 
settlements of any size had a primary school; there were also several 
secondary schools. It was not uncommon for Cuna to migrate to 
further their education — there was a contingent of Cuna at the 
University of Panama, and a few had studied abroad. On islands 
with the longest history of schooling, illiteracy rates among those 
10 years of age and older were in the range of 15 percent in the 
late 1970s. The 4 villages that had refused schools until the late 
1960s and early 1970s averaged nearly 95 percent illiterate. Over- 
all, more than half the Cuna population over ten years of age was 
literate, and a comparable proportion of those aged seven to fifteen 
were in school. 

Cuna relations with outsiders, especially the Panamanian govern- 
ment, have frequently been stormy. In general, however, the Cuna 
have managed to hold their own more effectively than most indige- 
nous peoples. Early in the twentieth century, there were several 
Cuna confederacies, each under the aegis of the main village's chief. 
The chiefs negotiated with outsiders on behalf of the villages within 
their alliance. 

In 1930 the national government recognized the semiautonomous 
status of the San Bias Cuna; eight years later the government formed 
the official Cuna reserve, the Comarca de San Bias. The Carta 
Organica, legislated by Law 16 of 1953, established the adminis- 
trative structure of the reservation. 

Tensions between the state and the Cuna increased under the 
rule of Omar Torrijos Herrera (1968-81) as the government 
attempted to alter Cuna political institutions. Cuna were unhappy 
over the appointment of Hispanics rather than Cuna to sensitive 
posts. Relations reached a low point during the controversy sur- 
rounding government plans to promote tourism in the region, 
threatening San Bias's status as a reserve. The conflict ended, 
however, with the reaffirmation of the reserve's status. The extent 
of Cuna disagreements with the national government was reflected 
in their vote in the 1977 referendum on the Panama Canal treaties: 
San Bias was the only electoral district to reject the treaties. For 



88 



Cuna girls 
in traditional dress 
Courtesy Agency for 
International Development 




the Cuna, this action was less a statement about the fate of the 
former Canal Zone or Panamanian sovereignty than their rather 
strongly held views about their autonomy. Although many 
government- sponsored reforms were incorporated into Cuna 
political institutions, the San Blasinos continued to exercise a sig- 
nificant measure of autonomy. 



The Guaymi Indians were concentrated in the more remote 
regions of Bocas del Toro, Chiriquf, and Veraguas. Because their 
territory was divided by the Cordillera Central, the Guaymi resided 
in two sections that were climatically and ecologically distinct. On 
the Pacific side, small hamlets were scattered throughout the more 
remote regions of Chiriqui and Veraguas; on the Atlantic side, the 
people remained in riverine and coastal environments. 

Contact was recorded between outsiders and Guaymi in the 
seventeenth and eighteenth centuries. Spanish colonial policy tried 
to group the Indians into settlements (reducciones) controlled by mis- 
sionaries. This policy enjoyed only limited success in the area of 
modern Panama. Although some Indians converted to Christianity 
and gradually merged with the surrounding rural mestizo populace, 
most simply retreated to more remote territories. 

Roman Catholic missionaries had sporadic contact with the 
Guaymi after the colonial era. Protestant missionaries — mostly 



Guaymi 



89 



Panama: A Country Study 

Methodists and Seventh-Day Adventists — were active on the fringes 
of Guaymi territory on the Atlantic side, beginning in the early 
twentieth century. The Guaymi were impressed by missionaries 
because most missionaries, unlike mestizos, did not try to take 
advantage of them in economic dealings. 

Present-day contact was most intense in Veraguas, where the 
mestizo farmers were expanding into previously remote lands at 
a rapid rate. Guaymi in Bocas del Toro and Chiriquf were less 
affected. The entry of these outsiders effectively partitioned Guaymi 
lands. There was a rise in the proportion of tribal members bilin- 
gual in Spanish and Guaymi, substantial numbers of whom even- 
tually abandoned Guaymi and disclaimed their Indian identity. 

Government schools, especially along the Atlantic portion of 
Guaymi territory, attracted Indian settlements. Many parents were 
anxious for their children to attend at least primary school. They 
arranged for their children to board as servants with Antillean black 
families living in town, so that the children could attend classes. 
The outcome was a substantial number of Guaymi young adults 
who were trilingual in Guaymi, Spanish, and English. 

Guaymi subsistence relied on crop raising, small-scale livestock 
production, hunting, and fishing. In contrast to the slash- and-burn 
agriculture practiced by the majority mestizo population, Guaymi 
agriculture was more similar to the type of exploitation practiced 
in the pre-Columbian era. It placed less reliance on machete and 
match, and more emphasis on the gradual selective clearing and 
weeding of plots at the seedling stage of crop growth. The Guaymi 
burned some trees (that did not have to be felled), but generally 
left more vegetation to decay. This strategy did not subject the 
fragile tropical soils to the intense leaching that often follows clear 
cutting and burning of the tropical forest. The Guaymi agricultural 
system relied upon an intimate and detailed knowledge of the forest 
flora. The Guaymi marked seasons not as much by changes in tem- 
perature and precipitation as by differences in plants. They noted 
the times of the year by observing when various plants matured. 
As an agricultural system it was highly diversified, and the wide 
range of crop varieties planted conferred resistance to the diverse 
pests that afflict more specialized farming systems. As an exam- 
ple, Guaymi banana trees produced fruit for sale during all the 
years that blight had essentially shut down the commercial banana 
plantations in the region. 

Like much of rural Panama, Guaymi territories were subjected 
to considerable pressure. The length of time land was left fallow 
decreased. In addition, there were few stands of even well- 
established secondary forest, let alone untouched tropical forest. 



90 



The Society and Its Environment 



In the more intensively used regions, cultivators noted the prolifera- 
tion of the short, coarse grasses that are the bane of traditional slash - 
and-burn agricultural systems (see Rural Society, this ch.). 

The decline in stands of virgin and secondary forest led to a 
decrease in wildlife, which affected the Guaymi diet. Domestic 
livestock grew in importance as a source of protein because larger 
animals, such as tapir, deer, and peccary, once plentiful, were avail- 
able only occasionally. Smaller livestock, such as poultry, was 
extremely vulnerable to disease and predation. Pigs and cattle were 
raised, but they were among the most consistently saleable products 
available; as a result, the Guaymi had to choose between protein 
and cash income. Overall, the diet was quite starchy, with bananas, 
manioc, and yams the main food items. 

Wildlife was adversely affected by modern hunting techniques, 
also. Traditional hunting and fishing techniques had a minimal 
impact on the species involved. However, the small-caliber rifles, 
flashlights, and underwater gear used by Guaymi in the modern 
era were far more destructive. 

The link of most Guaymi to the market economy was similar to 
that of many poorer rural mestizos. The Indians bought such items 
as clothing, cooking utensils, axes, blankets, alcohol, sewing 
machines, wristwatches, and radios. They earned the money for these 
purchases through period wage labor and the sale of livestock, crops, 
and crafts (the most unpredictable source of income). 

Most Guaymi young men had some experience as wage laborers, 
although their opportunities were usually limited and uncertain. 
Some acquired permanent or semipermanent jobs. A few managed 
to get skilled employment as mechanics or overseers. Fewer still 
became teachers. The principal employers for Guaymi were the 
surrounding banana plantations and cattie ranches. Because govern- 
ment policy after the 1950s limited the hiring of foreign laborers 
on the plantations, Guaymi formed a major part of the banana 
plantation work force. A number of Indian families settled in towns 
to work on the plantations. Nonetheless, the wages Guaymi earned 
proved illusory since most, if not all, of their earnings were spent 
on living expenses while away from home. 

The Guaymi link to the national economy not only provided cash 
for the purchase of a variety of consumer goods but also acted as 
a safety valve, relieving the pressure on land. Their dependence 
on this link was evident during the 1960s, when the Guaymi 
endured a real hardship because of a decline in demand for labor 
on banana plantations. 

Settlement patterns among the Guaymi were intimately 
linked to kinship and social organization. Hamlets, each typically 



91 



Panama: A Country Study 

representing a single extended family, were scattered throughout 
the territory. There were no larger settlements of any permanence 
serving as trading or ceremonial centers. A few mestizo towns on 
the fringes of Guaymf territory served as trading posts. 

Each hamlet was ideally composed of a group of con sanguine ally 
related males, their wives, and their unmarried children. Neverthe- 
less, this general rule glossed over residence patterns of consider- 
able fluidity and complexity. At least at some points in an 
individual's life, he or she resided in a three-generation household. 
Households, however, took many forms, including nuclear fami- 
lies; polygynous households; groups of brothers, their wives, and 
unmarried children; a couple, their unmarried children, and mar- 
ried sons and their wives and children; or a mother, her married 
sons, and their wives and children. 

A hamlet defined an individual's social identity, and access to 
land and livelihood was gained through residence in a specific ham- 
let. Typically, a person's closest kin resided there. The wide vari- 
ety of family forms represented in hamlets reflected the diverse ways 
individual Guaymf used the ties of kinship to gain access to land. 
Depending on the availability of plots, an individual couple might 
live with the husband's family (the ideal), the wife's kin, the hus- 
band's mother (if his parents did not live together), the husband's 
mother's kin, or his father's mother's kin. 

Guaymf had pronounced notions about which tasks were appro- 
priately male or female; but men would build fires, cook, and care 
for children if necessary and women would, as the occasion 
demanded, weed and chop firewood. Women were never supposed 
to clear forest, herd cattle, or hunt. Nonetheless, a measure of 
expediency dictated who actually performed the required duties. 
Because most men migrated to look for employment, a significant 
segment of the agricultural work force was absent for lengthy periods 
of time. Consequently, women assumed a larger share of the farm- 
work during those absences. Their own male kinsmen helped with 
the heavier tasks. Children began assisting their parents at approxi- 
mately eight years of age. By the time a girl was fourteen to fifteen 
years old and a boy seventeen to eighteen, they were expected to 
do the work of an adult. 

Sharing of food and labor was an important form of exchange 
among kin. If a hamlet needed food, a woman or child would be 
sent to solicit food from relatives. Kin also formed a common labor 
pool for virtually all agricultural work. Guaymi did not hire each 
other as wage laborers. Non-kin assisted each other only for specific 
festive or communal works. Within the hamlet, all able-bodied 
family members were expected to contribute labor. Kin from 



92 



The Society and Its Environment 



different hamlets exchanged labor on a day-by-day basis. Individu- 
als were careful not to incur too many obligations so as not to com- 
promise their own household's agricultural production. Those who 
received assistance were obliged to provide food, meat, and chicha 
(a kind of beer) for all the workers. Moreover, there was supposed 
to be enough food to send a bit home with each worker. 

Marriage was the primary means by which Guaymf created social 
ties to other (non-kin) Guaymf. The ramifications of marriage 
exchanges extended far beyond the couple concerned. The selec- 
tion of a spouse was the choice of an allied group and reflected 
broader concerns such as access to land and wealth, resolution of 
longstanding disputes, or acquisition of an ally in a previously 
nonaligned party. 

Fathers usually arranged marriages for children. An agreement 
was marked by a visit of the groom and his parents to the home 
of the prospective bride and her family. The marriage itself was 
fixed through a series of visits between the two households involved. 
No formal ceremony marked the event. Ideally, marriage arrange- 
ments were to be balanced exchanges between two kin groups. 

Initially the young couple resided with the bride's parents because 
a son-in-law owed his parents-in-law labor. Thus, a bride usually 
did not leave her natal hamlet for at least a year. For the husband, 
persuading his wife to leave her family and join his was a major, 
and often insurmountable, hurdle. If the marriage conformed to 
the ideal of a balanced exchange, however, a husband's task was 
considerably easier in that his wife had to join him or her brother 
would not receive a wife. 

Young men in groups without daughters to exchange in mar- 
riage were at a disadvantage. Although they could (and did) ask 
for wives without giving a sister in return, the fathers of the brides 
gained significantly. A son-in-law whose family did not provide 
a bride to his wife's family faced longer labor obligations to his 
in-laws and uncertainty about when, or if, his wife would join him 
and his family. 

A minority of all marriages were polygynous. Traditionally, a 
man's ability to support more than one wife was testimony to his 
wealth and prestige. Co- wives were often sisters. A man could marry 
his wife's younger sister after he had established a household and 
acquired sufficient resources to support two families. Wives lived 
together until their sons matured and married. At that time, an 
extended household would reconstitute itself around a woman and 
her married sons and their wives and children. Younger wives in 
polygynous marriages had a tendency to leave their husbands as 
they aged. A reasonably successful Guaymf man might expect to 



93 



Panama: A Country Study 

begin his married life in a monogamous union, have several wives 
as he grew more wealthy, and finish his life again in a monoga- 
mous marriage. 

In general, there were few external indications of differences in 
wealth, and there was no formal ranking of status in Guaymi soci- 
ety. Prestige accrued to the individual Guaymi male who was able 
to demonstrate largesse in meeting his obligations to kin and in-laws. 
A young man began to gain the respect of his in-laws by provid- 
ing them well with food and labor. He further demonstrated his 
abilities by farming his own plots well enough to provide for his 
family and those of his kin who visited. 

An individual might also gain prestige through his ability to settle 
differences. Historically, disputes between Guaymi were settled at 
public meetings chaired by a person skilled in arbitration. An indi- 
vidual's prestige was in proportion to his ability to reach a con- 
sensus among the parties involved in the dispute. In present-day 
Guaymi society, a government-appointed representative decided 
the case. Guaymi gained prestige by proposing settlements more 
acceptable to the disputants than those of the government represen- 
tative. As an individual's reputation spread, other disputants sought 
him out to arbitrate. The entire process emphasized the extent to 
which indigenous political structures were acephalous and loosely 
organized. There were no durable, well-organized, non-kin groups 
that functioned in the political sphere; decision making was largely 
informal and consensual. 

In the 1980s, government plans to develop the Cerro Colorado 
copper mine, along the Cordillera Central in eastern Chiriqui 
Province, gave impetus to the efforts of some Guaymi to organize 
politically. Most of the mining project as well as a planned slurry 
pipeline, a highway, and the Changuinola I Hydroelectric Project 
were in territory occupied by the Guaymi. Guaymi attended a num- 
ber of congresses to protect their claims to land and publicize their 
misgivings about the projects. The Guaymi were concerned about 
the government's apparent lack of interest in their plight, about the 
impact on their lands and their productivity, and about the effect 
of dam construction on fishing and water supplies. Guaymi were 
also worried that proposed cash indemnification payments for lands 
or damages would be of little benefit to them in the long run. As 
of late 1987, however, the matter had not been fully resolved. 

Social Organization 
Family and Kin 

In the late 1980s, family and kin continued to play a central role 



94 



The Society and Its Environment 



in the social lives of most Panamanians. An individual without kin 
to turn to for protection and aid was in a precarious position. 
Loyalty to one's kin was an ingrained value, and family ties were 
considered one's surest defense against a hostile and uncertain 
world. This loyalty often outweighed that given to a spouse; indeed, 
a man frequently gave priority to his responsibility to his parents 
or siblings over that extended to his wife. 

Co-resident parents, children, and others living with them con- 
stituted the basic unit of kinship. Family members relied upon each 
other for assistance in major undertakings throughout life. Extended 
kin were important as well. Grandparents, uncles, aunts, and cous- 
ins faithfully gathered to mark birthdays and holidays together. 
Married children visited their parents frequently — even daily. In 
some small remote villages and in some classes (such as the elite), 
generations of intermarriage created a high measure of interrelated- 
ness, and almost everyone could trace a kinship link with every- 
one else. Co-residence, nonetheless, remained the basis for the most 
enduring ties an individual formed. 

A significant portion of all marriage unions were consensual 
rather than contractual. A formal marriage ceremony often 
represented the culmination of a life together for many mestizo and 
Antillean couples. It served as a mark of economic success. Grown 
children sometimes promoted their parents' formal marriage. Alter- 
natively, a priest might encourage it for an elderly sick person, as 
a prerequisite for receiving the rite of the anointing of the sick. 

The stability of consensual marriages varied considerably. In 
rural areas where campesinos' livelihood was reasonably secure and 
population relatively stable, social controls bolstered informal 
unions. Mestizos themselves made no distinction between the 
obligations and duties of couples in a consensual or a legal mar- 
riage. Children suffered little social stigma if their parents were 
not legally married. If the union was unstable and there were chil- 
dren, the paternal grandparents sometimes took in both mother 
and children. Or, a woman might return to her mother's or her 
parents' household, leaving behind her children so that she could 
work. Nevertheless, there were a significant number of female- 
headed families, particularly in cities and among the poorest seg- 
ment of the population. 

Formally constituted legal marriage was the rule among the more 
prosperous campesinos, cattle ranchers, the urban middle class, 
and the elite. Marriage played a significant role for the elite in defin- 
ing and maintaining the family's status. A concern for genealogy, 
imputed racial purity, and wealth were major considerations. 
Repeated intermarriage made the older elite families into a broadly 



95 



Panama: A Country Study 

interrelated web of kin. As one upper-class wife noted, ". . .no 
member of my family marries anyone whose greatgrandparents 
were unknown to us." 

Men were expected to be sexually active outside of marriage. 
Keeping a mistress was acceptable in virtually every class. Among 
the wealthier classes, a man's relationship with his mistress could 
take on a quasi-formal, permanent quality. An elite male could 
entertain his mistress on all but the most formal social occasions, 
and he could expect to receive friends at the apartment he had 
provided for her. Furthermore, he would recognize and support 
the children she bore him. 

The ideal focus for a woman, by contrast, was home, family, 
and children. Children were a woman's main goal and consolation 
in life. The tie between mother and child was virtually sacrosanct, 
and filial love and respect deeply held duties. Whatever her hus- 
band's extramarital activities, a woman's fidelity had to be above 
reproach. An elite or middle-class woman derived considerable 
solace from her status as a man's legal wife. Nevertheless, middle- 
class and more educated women often found their traditional role 
and the division of labor irksome and were particularly offended 
by the diversion of family funds into their husbands' pursuit of 
pleasure. 

Campesinos, too, divided social life into its properly male and 
female spheres: "The man is in the fields, the woman is in the 
home." As a corollary, men were "of the street" and able to visit 
at will. Women who circulated too freely were likened to prosti- 
tutes; men who performed female tasks were thought to be domi- 
nated by their wives. 

Childrearing practices reinforced the traditional male and female 
roles and values to a greater or lesser degree among all classes. 
Boys were permitted considerably more latitude and freedom than 
girls. Girls were typically tightly supervised, their companions 
screened, and their activities monitored. 

Because children were deeply desired, their birth was celebrated, 
and a baptism was a major family event. The selection of godparents 
(padrinos) was an important step that could have a pronounced 
influence on the child's welfare and future. It resulted in a quasi- 
kinship relationship that carried with it moral, ceremonial, and 
religious significance, and broadened family ties of trust, loyalty, 
and support. 

Parents tried to choose for their children godparents whom they 
respected, and trusted, and who were as high on the social scale 
as possible. A certain degree of formality and ceremony was 
expected of godparents in social interaction, but the bonds primarily 



96 



The Society and Its Environment 



involved protective responsibility and a willingness to render 
assistance in adversity. 

Campesinos followed two distinct patterns in choosing god- 
parents. The parents might choose a person of wealth, power, or 
prestige, thereby gaining an influential protector. Such a contact 
could give a parent the confidence to launch a child into an alien 
outside world, in which he or she might have little personal status 
or experience. By contrast, among some campesinos there was 
strong informal pressure in the opposite direction. They believed 
it was inappropriate to ask someone of higher economic status to 
act as a godparent, so they sought out instead a relative or friend, 
especially one who lived in the same area. The choice here tended 
to reinforce existing social ties and loyalties. 

Rural Society 

The opening of the trans-isthmian railroad in the mid-nineteenth 
century and the Panama Canal early in the twentieth century rein- 
forced the distinctions basic to Panamanian society: the dichoto- 
mies between rural and urban inhabitants; small-scale, mixed 
agriculturalists and larger cattle ranchers; the landless and land- 
owners; and mestizos and whites. By the late 1980s, urban-based 
control over rural lands was considerable. The metropolitan elite 
not only had substantial rural landholdings, but monopolized pivotal 
political posts as well. Wealthy city dwellers also controlled food- 
processing and transportation facilities. For the bulk of the mestizo 
peasants, though, limited population and ample reserves of land 
made elite control of resources less onerous than it might have been, 
as did the fact that urban elites tended to view their holdings less 
as agricultural enterprises than as estates in the countryside. 

Traditional slash-and-burn agriculture was the basis of rural 
livelihood for most human settlement on the isthmus (see Agricul- 
ture, ch. 3). All able-bodied household members were expected to 
contribute to the family's support. The peasant family was a sin- 
gle production and consumption unit. There was a marked divi- 
sion of labor by sex, and most of the work associated with crops 
and planting was done by men. Mestizos recognized the signifi- 
cant contribution children made to the agricultural output of a 
household. Boys and girls gradually assumed responsibilities for 
assisting with the duties deemed appropriate to their gender. As 
children, especially boys, grew older, they received part of the 
income from the sale of crops or part of a field that was "in their 
name." 

Agricultural production was geared to the household's consump- 
tion. A family typically kept some livestock and planted a variety 



97 



Panama: A Country Study 



of foodstuffs, of which maize was the principal crop. Peasants gained 
temporary access to land by entering an agreement to clear and 
maintain cattle pastures for absentee landowners. A family would 
agree to clear a stand of forest (ideally secondary growth) and plant 
it in crops for one to two years. At the end of the cycle, they would 
often seed the plot with grasses before moving on to a new site. 
Peasants also owed landowners a minimal number of days in labor 
each year. They faced further demands on their labor to build and 
maintain communal buildings, such as churches and schools, and 
to assist with certain public works required by the government. 

Since the 1950s, however, traditional slash-and-burn farming 
and the system of social relations it supports have been in the throes 
of change. Increasing population pressure, the rapid expansion of 
cattle ranching, and production of a variety of other cash crops 
in the interior provinces have put pressure on the land base neces- 
sary to maintain slash-and-burn agriculture while preserving the 
tropical forest. Improved transportation has been accompanied by 
a rapid expansion in cattle ranching in regions hitherto inaccessi- 
ble. The process as a whole has meant an increasing consolidation 
of landholdings and displacement of traditional small-scale farm- 
ers engaged in mixed crop and livestock production. The number 
of farms classified as family owned and operated has declined, in 
favor of larger units worked by agricultural laborers. This pattern 
has been accompanied by an increase in and intensification of land 
disputes. 

The consolidation process has been particularly intense in the 
lowlands of the Pacific coast and in Colon Province southwest of 
the city of Colon. In these regions, the expansion of the road net- 
work and the increasing number of all-weather roads have given 
potential cattle ranchers access to the large urban beef markets in 
Colon and Panama City. Cattle ranches grew five-fold in size in 
the hinterlands of Colon Province in the 1960s. Similar forces had 
a comparable impact on the Pacific coast, where cattle ranching 
increased by more than 400 percent from the 1950s through the 
1970s, and land values tripled. 

The increased demands on the land base affected peasant farm- 
ers on many levels. Growing population pressure and the felling 
of most untouched stands of tropical forest meant a decrease of hunt- 
ing and, therefore, of animal protein in the family diet. Peccary, 
deer, and iguana, once relatively common supplements to the mes- 
tizo diet, were less available. The same process limited the forest 
products available for home construction and firewood. Ironically, 
the expansion in cattle ranching limited the ability of small-scale 
farmers to keep larger livestock. The purchase price of cattle rose; 



98 



Mountainous countryside in Chiriqui Province 
Courtesy Organization of American States 

and, because increased planting meant that animals could not forage 
as freely as before, they had to be penned or fenced. Finally, where 
drought-resistant pasture grasses were seeded, the forest itself 
regenerated much more slowly — limiting still further the land's abil- 
ity to support an expanding population of both cattle ranchers and 
small farmers. 

The decline in the land available for slash- and-burn agriculture 
and the increase in cash cropping also drew peasants more deeply 
into commercialized agriculture in the 1980s. At the same time that 
small farmers faced declining harvests and increased pressure on 
the family's subsistence base, they were forced to compete in mar- 
kets for cash crops where the price was largely determined by larger- 
scale producers. Most of their production of cash crops was sporadic 
and in response to unpredictable situations. Difficulties in mar- 
keting placed small producers at a further disadvantage. 

Sugarcane provides an instructive example. Farmers often 
planted sugarcane as a second-year crop in the fields they had 
cleared. The crop was pressed on the draft-animal presses some 
families owned and used for home consumption. As transporta- 
tion improved, more small farmers gained access to large-scale, 
commercial sugarcane mills and had the option of growing sugar- 
cane on contract for the mills. Although this opportunity offered 
the cultivator a possible source of more reliable income, small 



99 



Panama: A Country Study 



farmers were disadvantaged in a number of ways. Planting cane 
precludes using a plot for foodstuffs during the second year of cul- 
tivation. In addition, it requires hired labor, and small-scale pro- 
ducers were hard pressed to offer wages competitive with those that 
larger farmers or the mills themselves could pay. Finally, small 
farmers were unable to control the timing of their harvesting, which 
is essential for gaining optimal yields, because producers had to 
cut and transport their harvest whenever they were able to con- 
tract laborers and truckers for hauling the crop to the mill. 

By the late 1980s, peasant families had become vastly more 
dependent on the money economy. In many regions, consumer 
goods replaced the traditional craft items produced at home, and 
hired labor was used in preference to labor exchange among house- 
holds. Neighbors previously linked through myriad ties of exchange 
and interdependence were now bound by their common link with 
external markets. The amount of cash purchases families had to 
make rose dramatically: corrugated roofing replaced thatch, metal 
cookware replaced gourds and wooden utensils, nails served instead 
of vines as fasteners, and, in rare instances, gas stoves were used 
instead of wood-burning ranges. 

Peasant families had a variety of subsidiary sources of income 
at their disposal. Men and women alike had opportunities to earn 
a little cash income. Women husked and cleaned rice for neighbors 
who could afford to pay, sewed, made hats, cooked, and washed 
clothes, while men made furniture. Those fortunate enough to own 
draft animals or trucks hauled goods for other farmers. Depending 
on location, season, and a variety of other factors, there was occa- 
sional demand for casual laborers. Such options represented a 
"safety net" that farmers took advantage of when crops failed or 
harvests were short. Nevertheless, nonfarming sources of income 
did not represent a viable alternative to agriculture for most families. 

The general increase in cash in circulation affected various seg- 
ments of the rural population differently. Younger or more highly 
educated and trained workers were able to compete for better-paying 
jobs and thus outearn their parents. Despite this, the impact on 
family life was cushioned because parents never counted on con- 
trolling their grown children. In one sense, families were better 
off because well-employed children were better able to assist their 
elderly parents. Where the increased cash purchases included milled 
rice, women were spared the arduous task of husking and milling 
rice themselves. Educational opportunities benefited all able to take 
advantage of them. Women gained in particular from the increase 
in employment opportunities for primary-school teachers. 



100 



The Society and Its Environment 



In addition to peasant farmers and ranchers, Panama had the 
core of a rural educated middle class by the mid-twentieth century. 
Frequently educated at the teachers' college in Santiago, in the 
province of Veraguas, these educated sons and daughters of more 
prosperous agriculturalists and small merchants were of marginal 
influence in comparison with the urban elite. Long excluded from 
any effective role in the nation's politics, they proved a bulwark 
of support for the Torrijos regime (see The Government of Torrijos 
and the National Guard, ch. 1). 

Land reform legislation drafted under the influence of the Alli- 
ance for Progress in the early 1960s recognized the peasants' right 
to land (see The National Guard in Ascendance, ch. 1). Neverthe- 
less, the law's consequences in the countryside were often 
unforeseen. The plots allocated under the law were usually too small 
to support slash-and-burn agriculture; they did not allow sufficient 
land for fallowing. And, for a substantial portion of peasant fami- 
lies, the cash outlay required to purchase land was prohibitive. 
Although the relatively poor were unable to assume such debts, 
the more prosperous were. Some of the more successful emigrants 
to the city managed to acquire land through land reform and rented 
it to farmers under terms equivalent to those previously available 
through larger absentee owners. 

In the late 1960s and early 1970s, the government attempted 
to model its land reform efforts on a collective farming system bor- 
rowed from Chile (see Land Tenure and Agrarian Reform, ch. 3). 
The government acquired tax-delinquent properties and set up a 
variety of collectively operated agro-enterprises. The collectives 
enjoyed mixed success, however. They tended to be heavily mecha- 
nized and dependent on outside infusions of technical assistance 
and capital, while they generated only minimal employment. The 
most dramatic successes were achieved in regions like Veraguas 
Province where small farmers competed with cattle ranchers for 
land. Collectives were less successful in areas where smallholdings 
predominated. 

Where small farmers held title to their lands — an infrequent pat- 
tern in traditional rural Panama — they often sold their lands to 
the larger, more heavily capitalized cattle ranches. The numbers 
of landless, or nearly landless, cultivators in search of plots to "bor- 
row" for a season's planting rose. Substantial numbers of these 
displaced small farmers chose migration as an alternative. 

Mestizo migrants from regions where cattle ranching was expand- 
ing entered the lowlands of the Atlantic coast and the Darien Penin- 
sula in increasing numbers. Migrants arrived and cleared forest 
land (generally away from the rivers favored by the region's earlier 



101 



Panama: A Country Study 

black, Indian, Hispanic Indian, and Hispanic black settlers). The 
process then repeated itself: the new settlers remained for a few 
years until improved roads brought more cattle ranchers; the colo- 
nos (internal migrants) who originally cleared the forest then sold 
their lands and moved yet deeper into the tropical forest. 

Migration 

Migration has played an increasingly significant role in the lives 
of Panamanians and has followed a distinct pattern throughout the 
twentieth century. Population movement has been into those dis- 
tricts and provinces enjoying a period of economic prosperity, typi- 
cally associated with the canal. As the economic boom peters out, 
the migrant population moves back to the primarily agricultural 
districts, to be reabsorbed into subsistence farming or small-scale 
businesses and services in the country's predominantly rural 
interior. The pattern has been repeated several times with the ebb 
and flow of economic activity. In the late 1980s, it remained to 
be seen what adaptations migrants would make given the shrink- 
ing rural land base. 

The 1911 census provides a baseline for population movements 
throughout the century. At that time, the provinces of Chiriqui 
and Panama accounted for nearly 40 percent of the total popula- 
tion. Chiriquf's growth was the result of migrants from Colombia 
in the nineteenth century; Panama's came as a result of the canal 
construction begun just after the turn of the century. The central 
provinces — Veraguas, Code, Los Santos, and Herrera (in order 
of population) — accounted for slightly more than 40 percent of the 
total. The entire region had been populated along the coasts since 
the colonial era and had grown in response to increased demand 
for foodstuffs in Panama City and Colon in the second half of the 
nineteenth century. The decade following the census saw dramatic 
population growth in response to the United States presence and 
the building of the Panama Canal. The need to feed the massive 
numbers of Antillean black laborers who came to work on the con- 
struction project generated a boom in agriculture. 

Subsequent censuses revealed a specific pattern of rural-rural 
and rural-urban migration. Some rural districts of a province lost 
population, while others even relatively close grew rapidly. The 
pattern reversed itself during periods of economic stagnation. Then, 
migrants retreated into subsistence agriculture in regions that had 
enjoyed limited participation in the previous boom. Between 1910 
and 1920, for example, the Chepigana District in Darien was in 
the midst of a boom and enjoyed a significant influx of population, 



102 



The Society and Its Environment 



while the neighboring Pinogana District lost population. Their roles 
were reversed in the following decade. 

The 1920s represented such a period of stagnation. The regions 
of highest growth in the previous decade grew much more slowly — if 
they grew at all. Colon and Bocas del Toro were the most heavily 
affected. Panama Province continued to grow at rates slightly in 
excess of the national average; nonetheless, a large number of for- 
eign workers left, as did a significant portion of the small business 
owners who had provisioned them and who were ruined by the 
decline in clientele. 

Rural regions absorbed these surplus laborers and served as 
centers of population growth throughout the 1920s. Some such as 
Veraguas and Darien grew in excess of 5 percent annually during 
the intercensal period. District capitals in predominantly rural 
provinces tended to enjoy significant growth as well, probably as 
a result of their administrative functions, and the rise of banana 
plantations in Chiriqui attracted workers from throughout Cen- 
tral America. 

The pattern reversed again in the late 1930s and mid- 1940s. The 
immediate pre-World War II period as well as the war itself were 
times of significant economic expansion for the country as a whole. 
The province of Panama headed the country in population growth, 
and the entire western portion of the province was a region of eco- 
nomic expansion. Colon, by contrast, lost in importance. Its annual 
rate of increase, 1.44 percent, was barely half the national aver- 
age. The decline in Colon's fortunes reflected the centralization 
of economic and administrative activity in Panama City. Further- 
more, Colon's importance as a port on the Atiantic diminished with 
the construction of the Trans-isthmian Highway (also known as 
the Boyd-Roosevelt Highway). 

The economic expansion accompanying World War II elimi- 
nated problems associated with the increase in large-scale agro- 
enterprises in the interior. Although substantial numbers of small 
farmers were displaced, they were readily absorbed by the demand 
for labor in cities and the countryside. Even in the period of eco- 
nomic contraction following the war, cities in predominantly rural 
provinces enjoyed significant growth. The war fueled the develop- 
ment of small-scale industrial and processing activities through- 
out the country. The dimensions of this growth were such that large 
numbers of rural youngsters — sons and daughters of small farm- 
ers — remained in the provinces in which they were born rather than 
migrating to Panama City or the Canal Zone. 

World War II also saw Panama's last major influx of foreign 
workers. Most of these workers left with the economic slowdown 



103 



Panama: A Country Study 

at the war's end. As in previous periods of economic contraction, 
increasing numbers of displaced migrants took refuge in subsis- 
tence farming. The late 1940s was a time of growth for the rural 
regions of the country. 

Overall, population grew at an annual rate of 2.9 percent in the 
1950s; Panama was in the midst of a demographic transition as 
birth rates remained high while death rates dropped. The press 
of the population on the land base reached critical proportions. 
Peasants, displaced by the spread of large-scale agro-enterprises 
in the country, found it more and more difficult to find unoccupied 
land to put into production. At the same time, rural-urban migrants 
found it increasingly difficult simply to return home and resume 
farming during periods of economic contraction. 

The pressure on the land base was acute enough to precipitate 
significant conflict over holdings in the 1950s and 1960s. In the 
province of Panama, peasants invaded and seized the land around 
Gatun Lake as well as some regions of the districts of La Chor- 
rera, Capira, and Chaime. Although many of these squatters were 
successful in maintaining their claim on the holdings, most peasants 
in other parts of the country were not so fortunate. The expansion 
of large cattle ranches in much of Los Santos and Veraguas con- 
tinued the migratory process begun earlier, and peasants were 
pushed farther and farther along the agricultural frontier. 

Substantial numbers of these displaced peasants migrated to less 
settled regions in Chiriqui, Los Santos, and Veraguas. Likewise, 
banana plantations in Chiriqui and Bocas del Toro drew signifi- 
cant numbers of migrants. The principal destination for much of 
the rural populace, however, was Greater Panama City. 

Nearly two-thirds of all migrants had as their destination the 
heavily urban province of Panama — a proportion that has remained 
roughly constant since the 1950s. In terms of absolute numbers, 
Los Santos and Veraguas were the major contributors to the migra- 
tion stream: together they accounted for one-third of all migrants. 
The relatively depressed districts around Colon contributed large 
numbers of migrants, as did a number of districts in Chiriqui and 
Bocas del Toro. Based on rates of out-migration rather than abso- 
lute numbers, Los Santos, Darien, and Code were the main places 
of origin. 

Within the province of Panama, the greater metropolitan area 
of Panama City attracted most migrants. The districts surround- 
ing the city averaged a growth rate of more than 10 percent per 
year in the 1960s and 1970s. Panama City played a significant role 
in the migration patterns of virtually every other province in the 
country. Over 90 percent of the migrants from Darien went there, 



104 



Squatter dwellings in San Miguelito 
Courtesy Agency for International Development 

as did roughly 80 percent of those from Code, Colon, Los Santos, 
and Veraguas. In the relatively prosperous mid-1960s to mid-1970s, 
most migrants managed to find employment. Many joined the ranks 
of peddlers and other small-scale self-employed individuals. 

The manufacturing sector expanded significantly during the 
1960s, resulting in a doubling of the industrial labor force. The 
service sector — traditionally the country's most dynamic — was 
fueled by the expansion of manufacturing as well as Panama's piv- 
otal position as a transit zone. The service sector absorbed more 
than half the increase in the economically active population and 
grew at a rate of more than 6 percent annually. For the city-bound 
migrant, that meant jobs in public and domestic service and con- 
struction. Nevertheless, some observers expected the rate of migra- 
tion to the metropolitan region to decline with economic reverses 
in the 1980s and the increase in opportunities in other regions, such 
as the Cerro Colorado copper project in Chiriquf. 

Overall, the migration stream in the 1970s was composed of three 
components: rural-urban migrants (accounting for more than half 
of all migrants), urban-urban migrants (roughly one-quarter of all 
migrants), and urban-rural migrants (nearly 20 percent of those 
questioned about their place of residence 5 years earlier had been 
living in a city). The exact proportion and significance of urban- 
rural migration were difficult to judge. Approximately half the 



105 



Panama: A Country Study 

migrants were former residents of the smaller cities of the interior 
and presumably had left their farms for seasonal work in a nearby 
city or to attend school. Nearly one-third of these return migrants 
had lived in Panama City and its environs. Many were special- 
ized workers; others were peasants unable to find permanent 
employment in the city; still others were children sent home to be 
cared for by kin. 

Those people who migrated were, as a whole, young. In the 1970s 
nearly 75 percent of them were under 35 years of age; among rural- 
urban migrants, the percentage rose to more than 80 percent. 
School-age migrants represented a significant group in the migra- 
tion stream. Although many simply accompanied their parents on 
moves, a significant minority were sent by their rural families for 
education in nearby cities. Men formed the majority among rural- 
urban migrants to Colon; women, however, accounted for a slight 
majority of all rural-urban migrants. This tendency was most 
marked in migration of women to cities in the interior but was 
also found among migrants to Panama City. In general, observ- 
ers attributed the high rate of female migration to the metropoli- 
tan region to the opportunities for employment available for young 
women there. Unemployment was lower among urban females than 
among their rural counterparts, whereas the reverse was true for 
males. 

Urban Society 

Since the 1950s, Panama has been in the midst of massive urban 
expansion. In 1960 slightly more than one-third of the total popu- 
lation was classified as urban; by the early 1980s, the figure had 
risen to 55 percent. Between 1970 and 1980, overall population 
increased by 2.5 percent per year, urban population by 2.8 per- 
cent, and the metropolitan population surrounding Panama City 
by 3.7 percent. Regional cities shared in the general urban expan- 
sion: the number of people in Santiago grew at 4.1 percent annu- 
ally; David, 3.7 percent; and Chitre, 3.3 percent. Economically 
depressed Colon lagged with an annual increase of less than 0.5 
percent. Economic activity and population density in Panama were 
concentrated along two main axes: the Pan-American Highway 
(also known as the the Inter-American Highway) on the Pacific 
corridor from La Chorrera to Tocumen and the Trans-isthmian 
Highway from Panama City to Colon (see fig. 8). 

Far and away the most significant focus of urban development 
was the path following the former Canal Zone that stretches from 
Colon on the Atlantic coast to Panama City on the Pacific. In the 
mid-1980s, the region accounted for more than half the total 



106 



The Society and Its Environment 



population of the country and over two-thirds of all those classi- 
fied as inhabitants of cities. It also included most nonagricultural 
economic activity: 76 percent of manufacturing, 85 percent of con- 
struction, 95 percent of transportation, and 84 percent of commu- 
nications. Growth was not spread evenly throughout the region, 
and since the 1950s, Panama City and its environs had eclipsed 
Colon. Colon remained the only significant urban center on Pana- 
ma's Atlantic coast, but by the early 1980s, substantial numbers 
of that city's business and professional community had emigrated 
in response to Panama City's expanding economy. 

In terms of sheer numbers, most of the urban expansion was 
concentrated in slum tenements and, since the 1950s, in squatter 
settlements around the major cities. As was the case in most urban 
trends, Panama City led the way. In 1958 there were 11 identifi- 
able slums or squatter settlements housing 18,000 people associated 
with the city; by the mid-1970s, there were some 34 slum commu- 
nities, and their population had mushroomed more than five-fold. 
Surveys indicated that 80 percent of slum and squatter settlement 
inhabitants were migrants to the city. 

Many of the tenements took the form of two-story frame houses 
built as pre-World War I temporary housing for the canal labor 
force. They continued to be occupied, although in the early 1980s 
they were in an advanced state of decay. When one part of a build- 
ing collapsed, slum dwellers continued to live in those sections of 
the building that remained standing. The structures were frequently 
condemned, which merely added to their attractiveness for impov- 
erished city dwellers because the rent therefore dropped to noth- 
ing. Squatter settlements offered their own inducements. If squatters 
were able to maintain their claims to land, the settlements tended 
to improve and gained amenities over time. Because they were 
essentially rent-free, they gave their inhabitants considerable advan- 
tages over costly and over-crowded, if more centrally located, tene- 
ments. A substantial portion of the squatters settled on government 
land, and there were numerous programs to permit them to pur- 
chase their housing sites. The Torrijos regime allocated funds for 
low-income housing projects, and there were efforts to upgrade the 
amenities available to the urban poor. By the 1980s, about 96 per- 
cent of the urban population had access to potable water and nearly 
70 percent had electricity. Despite indications of some slowing in 
the rate of rural-urban migration in the 1980s, migrants represented 
a major strain on public services and the economy's ability to gener- 
ate employment. 

Although rural society was relatively homogeneous and simple 
in the social distinctions it made, urban Panama was not. It was 



107 



Panama: A Country Study 

ethnically and socially diverse and highly stratified. City dwellers 
took note of ethnic or racial heritage, family background, income 
(and source of income), religion, culture, education, and political 
influences as key characteristics in classifying individuals. 

But, in the late 1980s, the boundaries among the elite, the mid- 
dle class, and the lower class were neither especially well defined 
nor impervious. The ambitious and lucky city dweller could aspire 
to better significantly his or her social and economic status. Neither 
were the distinctions between rural and urban inhabitants abso- 
lute. City and countryside were linked in numerous ways; given 
the frequency with which migrants moved, this year's urban worker 
was last year's and (not uncommonly) next year's peasant. There 
was considerable social mobility, principally from the lower to the 
middle class and generally on an individual rather than a group 
basis. Wealth, occupation, education, and family affiliation were 
the main factors affecting such mobility. 

The Elite 

Urban society in the late 1980s included virtually all members 
of the elite. Centered mainly in the capital, this class was composed 
of old families of Spanish descent and a few newer families of 
immigrants. All elite families were wealthy, but the assets of the 
immigrant families were more tightly linked with commerce and 
Panama's twentieth-century development as a transit zone. Older 
families were inclined to think of themselves an aristocracy based 
on birth and breeding. Newer families, lacking such illustrious 
antecedents, had less prestige and social status. Until the advent 
of Torrijos, whose power base was the National Guard, an oligar- 
chy of older elite families virtually controlled the country's politics 
under the auspices of the Liberal Party (see Organizing the New 
Republic; the Oligarchy under Fire, ch. 1). 

The upper class was a small, close-knit group that had developed 
strong ties of association and kinship over the years. Prominent 
family names recurred frequently in the news of the nation: Arias, 
Arosemena, Aleman, Chiari, Goytia, and de la Guardia. People 
without a claim to such a family background could gain acceptance, 
at least for their children, by marriage into an elite family. 

Since colonial times, education had been recognized as a mark 
of status; hence, almost all men of elite status received a university 
education. Most attended private schools either at home or abroad, 
and many studied a profession, with law and medicine the most 
favored. The practice of a profession was viewed not as a means 
of livelihood, but as a status symbol and an adjunct to a political 
career. The elite maintained a dual cultural allegiance, because 



108 



Panama City skyline 
Courtesy Embassy of Panama 

families usually sent their sons to Western Europe or the United 
States to complete their education. Increasing numbers of women 
also attended college, but most families did not see such education 
as essential. 

Politics was the quintessential career for a young man of elite 
background. The old, aristocratic families had long provided the 
republic's presidents, its cabinet ministers, and many members of 
the legislatures. Young women were increasingly finding employ- 
ment in public administration and commerce in the 1980s. 

Older elite families were closely interrelated and were careful 
to avoid racially mixed unions. Antillean blacks enjoyed little suc- 
cess in attaining elite status, although a wealthy, Spanish- speaking, 
Roman Catholic black could gain acceptance. There was an 
increasing degree of admixture with mestizo and more recent 
immigrant elements. Many such families entered the elite and inter- 
married with members of the older families. In a sense, commer- 
cial success had in large measure become a substitute for an 
illustrious family background. "Money whitens everyone" was a 
popular saying describing the phenomenon. 

The Middle Class 

The middle class was predominantly mestizo, but it included such 
diverse elements as the children and grandchildren of Antillean 



109 



Panama: A Country Study 

blacks, the descendants of Chinese laborers on the railroad, Jews, 
more recent immigrants from Europe and the Middle East, and 
a few former elite families fallen on hard times. Like the elite, the 
middle class was largely urban, although many small cities and 
towns of the interior had their own middle-class families. The middle 
class encompassed small businessmen, professionals, managerial 
and technical personnel, and government administrators. Its mem- 
bership was defined by those who, by economic assets or social sta- 
tus, were not identifiably elite but who were still markedly better 
off than the lower class. As a whole, the middle class benefited from 
the economic prosperity of the 1960s and early 1970s, as well as 
the general expansion in educational opportunities in the late twen- 
tieth century. 

Members of the middle class who had held such status for any 
length of time were rarely content to remain fixed on the social 
scale. Emulating elite norms and attitudes, they exerted great effort 
to continue their climb up the social ladder. They were aware of 
the importance of education and occupation in determining status 
and the compensatory role these variables could play in the absence 
of family wealth or social background. Middle-class parents made 
great sacrifices to send their children to the best schools possible. 
Young men were encouraged to acquire a profession, and young 
women were steered toward office jobs in government or business. 
In contrast with the elite, the middle class viewed teaching as an 
appropriate occupation for a young woman. 

Nationalist sentiment served to unify the diverse elements of the 
middle class in the decades following World War II. University 
students, who were predominantly middle class in family back- 
ground, typified both the intense nationalism and the political 
activism of the middle class. Political observers noted a sharp class 
cleavage in the political consciousness of the Spanish-speaking 
natives and the more recent, unassimilated immigrant families. 
Middle-class immigrants tended to be preoccupied with commer- 
cial pursuits and largely conservative or passive in their politics. 

The Lower Class 

The lower class constituted the bulk of the country's urban popu- 
lation. As a group, it was stratified by employment and race. In 
terms of livelihood it was made up of unskilled or semiskilled work- 
ers, including artisans, vendors, manual laborers, and servants. 
The basic cleavages were between those who were wage earners 
and the self-employed, and those employed in the former Canal 
Zone, who constituted a "labor elite" earning twice the average 
of the metropolitan region as a whole. 



110 



The Society and Its Environment 



Self-employment offered a precarious existence to most who pur- 
sued it, but served as an alternative for those unable to find other 
work when the economy contracted in the late 1970s and 1980s. 
Unemployment ran in excess of 10 percent in the late 1970s and 
early 1980s, and much of it was concentrated in the metropolitan 
region, which accounted for approximately four-fifths of the coun- 
try's jobless. In poorer neighborhoods, the rate ran closer to 25 per- 
cent, and among low-income families, roughly 40 percent were 
unemployed (see Human Resources and Income, ch. 3). 

Because the majority of rural-urban migrants to the metropoli- 
tan region were women, women outnumbered men in many larger 
urban areas. Many came in search of work as domestics. Young, 
single mothers constituted a significant proportion of the urban 
population; in Colon, for example, they represented one-third of 
all families. Women suffered higher unemployment rates than did 
men, and their earnings, when they were employed, averaged less 
than half those of males. 

Ethnically, the lower class had three principal components: mes- 
tizo migrants from the countryside, children and grandchildren of 
Antillean blacks, and Hispanicized blacks — descendants of former 
slaves. The split between Antillean blacks and the rest of the 
populace was particularly marked. Although there was some social 
mixing and intermarriage, religious and cultural differences iso- 
lated the Antilleans. They were gradually becoming more Hispani- 
cized, but the first generation usually remained oriented toward 
its Caribbean origins, and the second and third generations were 
under North American influence through exposure to United States 
citizens in the former Canal Zone where most were employed. 
Although some Antillean blacks were middle class, most remained 
in the lower class. 

Increasing numbers of urban lower-class parents were sending 
their children to school. A secondary-school diploma, in particu- 
lar, served as a permit to compete for white-collar jobs and eleva- 
tion to middle-class status. This kind of mobility was on the rise 
throughout the 1960s and 1970s. Mestizos were better able to take 
advantage of these opportunities than most, but Antilleans who 
were educated and conformed to Hispanic cultural norms enjoyed 
considerable mobility as well. The National Guard, and later the 
FDP, have been an avenue of advancement for both Hispanic and 
Antillean blacks. A substantial portion of the enlisted personnel 
have come from the ranks of the black urban poor and, increas- 
ingly, the rural mestizo population. Enlisted personnel could hope 
to advance to the officer corps. Under the Torrijos regime, many 
troop commanders were promoted from the ranks. 



Ill 



Panama: A Country Study 
Religion 

The Constitution prescribes that there shall be no prejudice with 
respect to religious freedom, and the practice of all forms of wor- 
ship is authorized. However, the Constitution recognizes that the 
Roman Catholic faith is the country's predominant religion and 
contains a provision that it be taught in the public schools. Such 
instruction or other religious activity is not, however, compulsory. 

The Constitution does not specifically provide for the separa- 
tion of church and state, but it implies the independent function- 
ing of each. Members of the clergy may not hold civil or military 
public office, except such posts as may be concerned with social 
welfare or public instruction. The Constitution stipulates that senior 
officials of the church hierarchy in Panama must be native-born 
citizens. 

The majority of Panamanians in the late 1980s were at least nomi- 
nal Roman Catholics. The Antillean black community, however, 
was largely Protestant. Indians followed their own indigenous belief 
systems, although both Protestant and Catholic missionaries were 
active among the various tribes. Roman Catholicism permeated 
the social environment culturally as well as religiously. The devout 
regarded church attendance and the observance of religious duties 
as regular features of everyday life, and even the most casual or 
nominal Roman Catholics adjusted the orientation of their daily 
lives to the prevailing norms of the religious calendar. Although 
some sacraments were observed more scrupulously than others, 
baptism was almost universal, and the last rites of the church were 
administered to many who during their lives had been indifferent 
to the precepts of the faith or its religious rituals. 

In the mid-1980s, when nearly 90 percent of the population was 
Roman Catholic, there were fewer than 300 priests in the coun- 
try. Virtually every town had its Roman Catholic church, but many 
did not have a priest in residence. Many rural inhabitants in the 
more remote areas received only an occasional visit from a busy 
priest who traveled among a number of isolated villages. 

Religious attitudes, customs, and beliefs differed somewhat 
between urban and rural areas, although many members of the 
urban working class, often recent migrants from rural regions, 
presumably retained their folk beliefs. According to one anthro- 
pologist, the belief system of the campesinos centered on God, the 
Devil, the saints, and the Virgin. Christ was viewed as more or 
less the chief saint, but as peripheral to the lives of men. The Virgin 
Mary served as an inspiration and model to women, but there was 
no comparable model for men. 



112 




113 



Panama: A Country Study 

Although the campesinos believed that each individual "is born 
with a destiny set by God," they also believed that the destiny could 
be altered if the individual succumbed to the constant blandish- 
ments and enticements of the Devil. The rural dwellers possessed 
a clear sense of reward and punishment that centered on All Souls' 
Day. On that day all who died during the previous year are sum- 
moned to judgment before God and the Devil. The life record of 
each person is recited by Saint Peter, and the good and bad deeds 
are weighed out on a Roman balance scale, thus determining the 
person's afterlife. 

Throughout the society, birth and death were marked by reli- 
gious rites observed by all but a very few. One of the first social 
functions in which newly born members of the family participated 
was the sacrament of baptism, which symbolized their entry into 
society and brought them into the church community. In the cities, 
church facilities were readily available, but in rural areas families 
often had to travel some distance to the nearest parish center for 
the ceremony. The trip was considered of great importance and 
was willingly undertaken. In fact, baptism was generally considered 
the most significant religious rite. 

If the family lived near a church that had a priest in regular 
attendance, children received an early exposure to the formal teach- 
ings of the church and were usually taken to mass regularly by their 
mothers. As they grew older, they took an increasing part in church 
liturgy and by the age of ten were usually full participants in such 
activities as catechism classes, communion, and confession. As they 
approached manhood, boys tended to drift away from the church 
and from conscientious observation of church ritual. Few young 
men attended services regularly, and even fewer took an active part 
in the religious life of the community, although they continued to 
consider themselves Roman Catholics. 

Girls, on the other hand, were encouraged to continue their 
religious devotions and observe the moral tenets of their faith. 
Women were more involved in the church than men, and the com- 
munity and clerics accepted this as a basic axiom. There was social 
pressure on women to become involved in church affairs, and most 
women, particularly in urban areas, responded. As a rule, they 
attended mass regularly and took an active part in church and 
church-sponsored activities. Religious gatherings and observances 
were among the principal forms of diversion for women outside 
the home, and to a great extent these activities were social as much 
as devotional. 



114 



The Society and Its Environment 



Education 

Public education began in Panama soon after independence from 
Colombia in 1903. The first efforts were guided by an extremely 
paternalistic view of the goals of education, as evidenced in com- 
ments made in a 1913 meeting of the First Panamanian Educa- 
tional Assembly, "The cultural heritage given to the child should 
be determined by the social position he will or should occupy. For 
this reason education should be different in accordance with the 
social class to which the student should be related." This elitist 
focus changed rapidly under United States influence. 

By the 1920s, Panamanian education subscribed to a progres- 
sive educational system, explicitly designed to assist the able and 
ambitious individual in search of upward social mobility. Succes- 
sive national governments gave a high priority to the development 
of a system of (at least) universal primary education; in the late 
1930s, as much as one-fourth of the national budget went to edu- 
cation. Between 1920 and 1934, primary-school enrollment dou- 
bled. Adult illiteracy, more than 70 percent in 1923, dropped to 
roughly half the adult population in scarcely more than a decade. 

By the early 1950s, adult illiteracy had dropped to 28 percent, 
but the rate of gain had also declined and further improvements 
were slow in coming. The 1950s saw essentially no improvement; 
adult illiteracy was 27 percent in 1960. There were notable gains 
in the 1960s, however, and the rate of adult illiteracy dropped 8 per- 
centage points by 1970. According to 1980 estimates, only 13 per- 
cent of Panamanians over 10 years of age were illiterate (see table 5, 
Appendix A). Men and women were approximately equally repre- 
sented among the literate. The most notable disparity was between 
urban and rural Panama; 94 percent of city-dwelling adults were 
literate, but fewer than two-thirds of those in the countryside 
were — a figure that also represented continued high illiteracy rates 
among the country's Indian population (see Indians, this ch.). 

From the 1950s through the early 1980s, educational enrollments 
expanded faster than the rate of population growth as a whole and, 
for most of that period, faster than the school-aged population. The 
steepest increases came in secondary and higher educational enroll- 
ments, which increased ten and more than thirty times, respectively 
(see table 6, Appendix A). By the mid-1980s, primary- school enroll- 
ment rates were roughly 113 percent of the primary-school-aged 
population. Male and female enrollments were relatively equal over- 
all, although there were significant regional variations. 

Enrollments at upper levels of schooling had increased strikingly 
both in relative and absolute terms since 1960. Between 1960 and 



115 



Panama: A Country Study 

the mid-1980s, secondary- school enrollments expanded some four- 
and-a-half times and higher education, nearly twelve-fold. In 1965 
fewer than one-third of children of secondary school age were in 
school and only 7 percent of people aged 20 to 24 years. In the 
mid-1980s, almost two-thirds of secondary-school-aged children 
were enrolled, and about 20 percent of individuals aged 20 to 24 
years were in institutions of higher education. 

School attendance was compulsory for children from ages six 
through fifteen years, or until the completion of primary school. 
A six-year primary cycle was followed by two types of secondary- 
school programs: an academic-oriented program and a vocational- 
type program. The academic program, which represented nearly 
three-quarters of all secondary-school enrollment, involved two 
three-year cycles. The lower cycle was of a general or exploratory 
nature, with a standard curriculum that included Spanish, social 
studies, religion, art, and music. The upper cycle consisted of two 
academic courses of study: in arts and sciences, leading to entrance 
to the university, or a less rigorous course of study, representing 
the end of a student's formal education (fewer than 4 percent of 
students pursued this course of studies in the mid-1980s). 

In addition to the academic program, there was a vocational- 
type secondary-school program that offered professional or tech- 
nical courses aimed specifically at giving students the technical skills 
needed for employment following graduation. In the mid-1980s, 
roughly one-quarter of all secondary students pursued this type of 
course. Like the more academic-oriented secondary- school program, 
the vocational-type program was divided into two cycles. Students 
could choose their studies from a variety of specializations, including 
agriculture, art, commerce, and industrial trades. 

Admission to the university normally required the bachillerato 
(graduation certificate or baccalaureate), awarded on completion 
of the upper cycle of the academic course of studies, although the 
University of Panama had some latitude in determining admis- 
sions standards. The bachillerato was generally considered an essential 
component of middle-class status. Public secondary schools that 
offered the baccalaureate degree also offered the lower cycle. They 
were generally located in provincial capital cities. The oldest, largest, 
and most highly regarded of these was the National Institute in 
Panama City. The University of Panama grew out of it, and the 
school had produced so many public figures that it was known as 
the Nest of Eagles (Nido de Aguilas). It tended to draw its student 
body from upwardly mobile rather than long-established elements 
of the elite. Its students were well known for their political activism. 



116 



School in Anton, Code Province 
Courtesy Agency for International Development 

Higher education on the isthmus dates from the founding of a 
Jesuit university in 1749; that institution closed with the order's 
expulsion from the New World in 1767. Another college, the 
Colegio del Istmo, was started early in the nineteenth century, but 
the school did not prosper, and Panamanians who wished to pur- 
sue a higher education were required to go abroad or to Colombia 
until 1935, when the University of Panama was founded. In the 
mid-1980s, most postsecondary schooling took place within the 
university. Other institutions, such as the School of Nursing and 
the Superior Center for Bilingual Secretaries, accounted for less 
than 3 percent of enrollment at this educational level. 

Nearly three-quarters of all university students attended the 
University of Panama in the 1980s. The university had, as well, 
a number of regional centers and extensions representing a small 
portion of the school's enrollment and faculty. The University of 
Santa Maria la Antigua, a private Roman Catholic institution 
established in 1965, enrolled another 5,000 to 6,000 students in 
the 1980s. A third university, the Technical University, was founded 
in 1981. It accounted for approximately 7,000 students. A sub- 
stantial portion of the well-to-do continued to study abroad. 

Most education was publicly funded and organized. In addition 
to the University of Santa Maria la Antigua, there were some pri- 
vate primary and secondary schools. Typically located in cities and 



117 



Panama: A Country Study 



considered very prestigious, they accounted for 5 to 7 percent of 
primary-school enrollment and approximately 25 percent of 
secondary-school students in the mid-1980s. 

Education continued to claim a large share of government bud- 
gets. It represented 15 to 20 percent of the national government's 
expenditures in the early to mid-1980s (see table 7, Appendix A). 
Most funding went to primary schooling, although both secondary 
and higher education received proportionately higher funding per 
student. Primary schools received roughly one-third of government 
education spending, secondary and higher education approximately 
20 percent each (see table 8, Appendix A). Budgets from 1979 
through 1983 allocated on average B220 per primary school stu- 
dent, B274 per secondary school student, and B922 per university 
student (for value of the balboa — see Glossary). 

The growth in enrollment was accompanied by a concomitant 
(if not always adequate) expansion in school facilities and increase 
in teaching staff. Teacher education was a high priority in the 1970s 
and 1980s, a reflection of the generally poor training teachers had 
received in the past. Schools increased at every level during the 
early 1980s; secondary schools made the most notable gains, more 
than doubling (see table 9, Appendix A). Pupil-teacher ratios for 
all levels were in the range of nineteen to twenty-six pupils per 
teacher in the mid-1980s. 

Health and Welfare 

The Ministry of Health bore primary responsibility for public 
health programs in the late 1980s. At the district and regional levels, 
medical directors were responsible for maintaining health-care ser- 
vices at health-care centers and hospitals and monitoring outreach 
programs for the communities surrounding these facilities. The 
Social Security Institute also maintained a medical fund for its mem- 
bers and ran a number of health-care facilities, which members 
could use for free and others for a nominal fee. In practice there 
was a history of conflict between Social Security Institute and Minis- 
try of Health personnel at the district and regional levels. Since 
1973 the Social Security Institute and the Ministry of Health had 
attempted — with limited success — to coordinate what were in 
essence two public health-care systems, in an effort to eliminate 
redundancy. 

Despite the bureaucratic conflicts, a number of health indica- 
tors showed significant improvement. Life expectancy at birth in 
1985 was seventy-one years — an increase of nearly ten years since 
1965 (see table 10, Appendix A). Infant mortality rates in 1984 
were less than one-third their 1960 levels, and the childhood death 



118 



t<? 17-1898 " • — — 

University of Panama 
Courtesy Organization of American States 



rate stood at less than 20 percent of the 1960 level. The number 
of physicians per capita had nearly tripled. 

The Department of Environmental Health was charged with 
administering rural health programs and maintaining a safe water 
supply for communities of fewer than 500 inhabitants — roughly 
one-third of the total population. The National Water and Sew- 
age Institute and the Ministry of Public Works shared responsi- 
bility for urban water supplies. 

By 1980 approximately 85 percent of the population had access 
to potable water and 89 percent to sanitation facilities. In rural 
Panama in the early 1980s, roughly 70 percent of the population 
had potable water and approximately 80 percent had sanitation 
facilities. The quality of water and sewage disposal varied consider- 
ably, however. Water transmission was less than reliable on the 
fringes of urban centers. In rural areas, much depended on the 
community's dedication to maintaining sanitation facilities and an 
operating water system. Many water treatment facilities were poorly 
maintained and overloaded, because of the intense urban growth 
the country had experienced since the end of World War II. In 
rural Panama, latrines and septic tanks tended to be over-used and 
under-maintained. The system as a whole stood in need of sub- 
stantial renovation and repair in the late 1980s. 



119 



Panama: A Country Study 

Public health, especially for rural Panamanians, was a high pri- 
ority. Under the slogan "Health for All by the Year 2000," in the 
early 1970s the government embarked on an ambitious program 
to improve the delivery of health services and sanitation in rural 
areas. The program aimed at changing the emphasis from cura- 
tive, hospital-based medical care to community-based preventive 
medicine. The 1970s and early 1980s saw substantial improvements 
in a wide variety of areas. Village health committees attempted 
to communicate the perceived needs of the villagers to health-care 
officials. The program enjoyed its most notable successes in the 
early 1970s with the construction of water delivery systems and 
latrines in a number of previously unserved rural areas. Village 
health committees also organized community health-education 
courses, immunization campaigns, and medical team visits to iso- 
lated villages. They were assisted by associations or federations of 
these village health committees at the district or regional level. These 
federations were able to lend money to villages for the construc- 
tion of sanitation facilities, assist them in contacting Ministry of 
Health personnel for specific projects, and help with the financing 
for medical visits to villages. 

Village health committees were most successful in regions where 
land and income were relatively equitably distributed. The regional 
medical director was pivotal; where he or she assigned a high pri- 
ority to preventive health care, the village communities continued 
to receive adequate support. However, many committees were 
inoperative by the mid-1980s. In general, rural health-care fund- 
ing had been adversely affected by government cutbacks. Facili- 
ties tended to be heavily used and poorly maintained. 

In the early 1980s, there continued to be marked disparities in 
health care between urban and rural regions. Medical facilities, 
including nearly all laboratory and special-care facilities, were con- 
centrated in the capital city. In 1983 roughly 87 percent of the hospi- 
tal beds were in publicly owned and operated institutions, mostly 
located in Panama City; one-quarter of all hospitals were in the 
capital (see table 11, Appendix A). Medical facilities and person- 
nel were concentrated beyond what might reasonably be expected, 
even given the capital city's share of total population. Panama City 
had roughly 2.5 times the national average of hospital beds and 
doctors per capita and nearly 3 times the number of nurses per 
capita (see table 12, Appendix A). The effect of this distribution 
was seen in continued regional disparities in health indicators. Rural 
Panama registered disproportionately high infant and maternal 
mortality rates. Rural babies were roughly 20 percent more likely 
to die than their urban counterparts; childbearing was 5 times more 



120 



The Society and Its Environment 



likely to be fatal in rural Panama than in cities (see table 13, 
Appendix A). In the early 1980s, the infant mortality rate of 
Panama Province was one-third that of Bocas del Toro and one- 
fourth that of Darien. 

Panama's social security system covered most permanent 
employees. Its principal disbursements were for retirement and 
health care. Permanent employees paid taxes to the Social Security 
Institute; the self-employed contributed on the basis of income as 
reported on income tax returns. Agricultural workers were gener- 
ally exempted. Changes in 1975 lowered the age at which workers 
could retire and altered the basis on which benefits were calculated. 
The general effect of the changes was to encourage the retirement 
of those best paid and best covered. It did little to benefit the most 
disadvantaged workers. 

There are a number of useful works on Panamanian society. John 
and Mavis Biesanz's The People of Panama, although dated, remains 
the most complete treatment of Panamanian society in its entirety. 
Stephen Gudeman's The Demise of a Rural Economy looks at the 
changing situation of small farmers and describes mestizo life in 
the countryside. There is extensive literature on Panama's prin- 
cipal Indian tribes. Of particular use to the general reader are 
Ngawbe by Philip D. Young (on the Guaymf), as well as his article 
co-authored with John R. Bort, "Politicization of the Guaymf," 
and The Kuna Gathering (about the Cuna) by James Howe. Statisti- 
cal information on a wide variety of topics is available from the 
Panamanian government's Panama en Cifras. (For further informa- 
tion and complete citations, see Bibliography.) 



121 



Chapter 3. The Economy 



Cuna Indian mola design of a San Bias inter-island boat at dock 



SEVERAL DISTINCTIVE FEATURES characterized Panama's 
economy in the late 1980s; the most striking was its internationally 
oriented services sector, which in 1985 accounted for over 73 per- 
cent of the gross domestic product (GDP — see Glossary), the highest 
such percentage in the world. That distinctiveness was best sym- 
bolized by the Panama Canal, which has dominated the country's 
economy in the twentieth century. The scope of the services sector 
has expanded and broadened through increased government ser- 
vices and initiatives such as the Colon Free Zone (CFZ — see Glos- 
sary), a trans-isthmian oil pipeline, and the International Financial 
Center. 

Another distinguishing feature was Panama's paper currency, 
the United States dollar. The local currency, the balboa, was tied 
to the United States dollar but was available only in coins. Pana- 
ma's money supply was determined by the United States Federal 
Reserve System; therefore, the country could neither print money 
nor devalue the currency. Because its monetary instruments are 
limited, Panama has avoided the cycle of exchange-rate devalua- 
tions and the accelerating inflation that have typified most Latin 
American economies. The balboa has remained on par with the 
United States dollar, and Panama has enjoyed the lowest average 
annual rate of inflation in Latin America — 7.1 percent in the 1970s, 
and only 3.7 percent between 1980 and 1985. 

The third economic distinction is that the Panamanians have 
one of the highest levels of per capita income in the developing 
world. Construction of the Panama Canal across the isthmus in 
the early 1900s and expanding world commerce have combined 
to foster rapid economic growth in the country throughout the twen- 
tieth century. By 1985 per capita gross national product (GNP — see 
Glossary) reached US$2, 100, twice the average in Central Ameri- 
can countries, greater than all South American countries except 
for Venezuela (US$3,080) and Argentina (US$2,130), and on a 
level with Mexico (US$2,080). Panamanians, however, have not 
shared equally in the rising living standards, because the distribu- 
tion of income has been highly skewed. 

The military leaders who seized control of the government in 
1968 under the leadership of General Omar Torrijos Herrera 
instituted economic policies that aimed at greater equity as well 
as integration of various facets of the country's fragmented econ- 
omy. By the time of Torrijos's death in July 1981, they had 



125 



Panama: A Country Study 

achieved some remarkable results, but at the expense of a low rate 
of private investment, increased urban unemployment, continued 
rural poverty, and growing external public debt. A document 
entitled Towards a More Human Economy was published in 1985 by 
Panama's Archbishop Marcos Gregorio McGrath, revealing a 
society in which 38 percent of the families lived in poverty and in 
which 22 percent of the population failed to earn at least US$200 
a month — the minimum amount considered necessary to purchase 
a basic basket of goods. The document went on to criticize many 
measures taken by the Torrijos government in the 1970s. At the 
same time, however, the publication recognized that remarkable 
progress had been made in other areas, such as a decline in infant 
mortality rates, a rise in the literacy rate, and social security cover- 
age for 60 percent of the population as compared with only 12 per- 
cent in 1960. Indeed, the economic policies instituted by the Torrijos 
regime (1968-81) were pivotal in Panama's history, but the results 
were mixed. 

Growth and Structure of the Economy 

Since the early 1500s, Panamanians have relied on the coun- 
try's comparative advantage — its geography. Exploitation of this 
advantage began soon after the Spanish arrived, when the con- 
quistadors used Panama to transship gold and silver from Peru to 
Spain (see The Conquest, ch. 1). Ports on each coast and a trail 
between them handled much of Spain's colonial trade from which 
the inhabitants of the port cities prospered. This was the begin- 
ning of the country's historical dependence on world commerce 
for prosperity and imports. Agriculture received little attention until 
the twentieth century, and by the 1980s had — for much of the 
population — barely developed beyond indigenous Indian tech- 
niques. Industry developed slowly because the flow of goods from 
Europe and later from North America created a disincentive for 
local production. 

Panama has been affected by the cyclical nature of international 
trade. The economy stagnated in the 1700s as colonial exchange 
via the isthmus declined. In the mid- 1800s, Panama's economy 
boomed as a result of increased cargo and passengers associated 
with the California gold rush. A railroad across the isthmus, com- 
pleted in 1855, prolonged economic growth for about fifteen years 
until completion of the first transcontinental railroad in the United 
States caused trans-isthmian traffic to decline. France's efforts to 
construct a canal across the isthmus in the 1880s and efforts by 
the United States in the early 1900s stimulated the Panamanian 
economy. 



126 



The Economy 



The United States completed the canal in 1914, and canal traffic 
expanded by an average of 15 percent a year between 1915 and 
1930. The stimulus was strongly felt in Panama City and Colon, 
the terminal cities of the canal. The world depression of the 1930s 
reduced international trade and canal traffic, however, causing 
extensive unemployment in the terminal cities and generating a 
flow of workers to subsistence farming. During World War II, canal 
traffic did not increase, but the economy boomed as the convoy 
system and the presence of United States forces, sent to defend the 
canal, increased foreign spending in the canal cities. The end of 
the war was followed by an economic depression and another exodus 
of unemployed people into agriculture. The government initiated 
a modest public works program, instituted price supports for major 
crops, and increased protection for selected agricultural and indus- 
trial products. 

The postwar depression gave way to rapid economic expansion 
between 1950 and 1970, when GDP increased by an average of 
6.4 percent a year, one of the highest sustained growth rates in 
the world. All sectors contributed to the growth. Agricultural out- 
put rose, boosted by greater fishing activities (especially shrimp), 
the development of high-value fruit and vegetable production, and 
the rapid growth of banana exports after disease-resistant trees were 
planted. Commerce evolved into a relatively sophisticated whole- 
sale and retail system. Banking, tourism, and the export of ser- 
vices to the Canal Zone grew rapidly. Most importantly, an increase 
in world trade provided a major stimulus to use of the canal and 
to the economy. 

In the 1970s and 1980s, Panama's growth fluctuated with the 
vagaries of the world economy. After 1973 economic expansion 
slowed considerably as the result of a number of international and 
domestic factors (see Recent Economic Performance, this ch.). Real 
GDP growth averaged 3.5 percent a year between 1973 and 1979. 
In the early 1980s, the economy rebounded with GDP growth rates 
of 15.4 percent in 1980, 4.2 percent in 1981, and 5.6 percent in 
1982. The acute recession in Latin America after 1982, however, 
wreaked havoc on Panama's economy. GDP growth in 1983 was 
a mere 0.4 percent; in 1984 it was negative 0.4 percent. In 1985 
Panama experienced economic recovery with 4.1 -percent GDP 
growth; the corresponding figure for 1986 was estimated to be 
2.8 percent. 

Changing Structure of the Economy 

The structure of Panama's economy in the twentieth century 
has been characterized by the dichotomy of a large internationally 



127 



Panama: A Country Study 



FY 1965- GDP US$660 million 




FY 1985- GDP US$4,880 million 



9.1% 




Figure 7. Gross Domestic Product by Sector, 1965 and 1985 



128 



The Economy 



oriented services sector and a small inward-looking goods sector. 
The major change in that structure has been the rapid growth of 
the services sector. In 1950 services accounted for about 57 per- 
cent of GDP; that share rose to 63 percent in 1965 and to over 
73 percent in 1985 (see fig. 7). Given Panama's geographic loca- 
tion, modern infrastructure, and an educated population trained 
in commercial and financial activity, services will likely remain the 
leading sector of the economy. 

In contrast, the goods sector has declined in relative terms. 
Although efforts have been made to stimulate agriculture and 
industry — and both registered substantial growth — their share of 
GDP has fallen as that of the services sector has risen. In the late 
1980s, one of the greatest challenges facing Panamanian policymak- 
ers was that of using the services sector as a springboard for growth, 
primarily in industry but also in agriculture. 

During the Torrijos administration, the economy was stimulated 
in several areas. The principal stimulus to the services sector was 
banking, particularly offshore banking (see Glossary). Transporta- 
tion also increased rapidly, along with expansion of the road net- 
work. Substantial investments were made in the communications 
system in an effort to meet international standards expected by the 
extensive network of foreign businesses. Storage and warehousing 
grew rapidly in response to the economy's own needs and particu- 
larly to the foreign business conducted in the CFZ. 

Industrialization progressed rapidly after 1950, with industrial 
production rising from 10 percent of GDP in 1950 to 19 percent 
in 1965. This expansion was based primarily on import substitu- 
tion. Industry continued to grow at an average annual rate of 
5.9 percent from 1965 through 1980, but registered negative 
2. 2 -percent average annual growth between 1980 and 1985. 

As a result of the lack of growth as well as the rapid rise of the 
services sector, industrial production had dropped slightly as a per- 
centage of GDP in 1985 — to just under 18 percent. Manufactur- 
ing accounted for about half of the industrial sector, followed by 
construction, energy, and mining. Given the small size of the 
domestic market, observers believed that future industrial growth 
would rely primarily on foreign markets. Success, therefore, would 
depend to a large extent on Panama's ability to make its industry 
internationally oriented and competitive. 

Although the agricultural sector continued to expand and to 
employ the largest number of workers, its share of GDP declined 
substantially, from 29 percent in 1950 to 18 percent in 1965 and 
about 9 percent in 1985. This sector grew at a respectable average 
annual rate of 2.4 percent between 1965 and 1980, and 2.7 percent 



129 



Panama: A Country Study 

between 1980 and 1985, but it could not keep pace with the rapid 
growth rate of the services sector. Bananas, shrimp, and sugar con- 
tinued to lead the list of export items. The expansion of the agricul- 
tural sector hinged on exports and product diversification. 

Recent Economic Performance 

The Torrijos era (1968-81) stands as a dividing point in Pana- 
ma's economic history. Under Torrijos, the state took a more active 
role in the economy and initiated ambitious social projects. The 
public sector expanded to an unprecedented degree, as did the fis- 
cal deficit and the external debt. In the 1980s, Panama was forced 
to address some of the excesses of the 1970s and to adjust its poli- 
cies, often under the aegis of the International Monetary Fund 
(IMF — see Glossary) and the World Bank (see Glossary). 

In the 1960s, Panama experienced buoyant growth in virtually 
all areas of the economy as a result of the boom in canal-related 
activities and the growth in private investment. GDP expanded 
at an average of 8 percent per year. Employment grew at 3.5 per- 
cent per year, well above the population growth of about 3 per- 
cent a year. Most of the new jobs were generated by the private 
sector. 

In the 1970s, Panama's average annual growth rate of GDP fell 
to 3.4 percent. Many factors contributed to the decline. In the inter- 
national arena, reduced canal use (especially after the Vietnam war), 
rising oil prices, international inflation, and recession in the major 
industrial countries had a negative impact on Panama's economy. 
Domestically, investment fell in response to government policies 
of agrarian reform, expropriation of private power companies, crea- 
tion of state industries, protection of labor, controls on housing, 
subsidies, and high support prices. In addition, the prolonged 
negotiations between the United States and Panama over the canal 
adversely affected investor confidence. The government sought to 
regain private investment by investing in large infrastructure 
projects and by expanding or acquiring productive enterprises. 
Two-thirds of the new jobs created in the 1970s were in the public 
sector. The public-sector deficit expanded, and the government was 
forced to borrow money from abroad. By 1980 the external debt 
had reached 80 percent of GDP. 

In 1982 Panama, like most of Latin America, felt the impact 
of the world recession. Once again, the government sought to 
remedy the declining private-sector investment through increased 
public expenditures. In the same year, the public-sector deficit 
reached 11 percent of GDP. In 1983 and 1984, the government 
imposed a severe austerity program, which had the imprimatur 



130 



The Economy 



of the IMF. Public investment was reduced by 20 percent in 1983 
and by a further 8 percent in 1984. The public deficit was also cut, 
to about 6 percent of GDP in both years. In addition, the govern- 
ment undertook structural adjustment measures in the areas of 
industry and agriculture and instituted changes to streamline the 
public sector. The simultaneous recession and reduction in public 
expenditures caused GDP to fall in 1984, the first decline in more 
than twenty years. In the following years, however, Panama, avoid- 
ing the economic slump that plagued most Latin American coun- 
tries, experienced moderate growth. 

Role of Government 

The government has played a limited role in economic matters 
throughout most of Panama's history, restricting its activities to 
infrastructural development and creating a climate conducive to 
private investment. The government's role expanded dramatically 
after 1968, when the National Guard, now called the Panama 
Defense Forces (Fuerzas de Defensa de Panama — FDP), took con- 
trol of the government under Torrijos's leadership. Members of 
the National Guard tended to be provincial, racially mixed, and 
lower- or middle-class in background and thus provided an out- 
look different from that of the urban-oriented elite that had domi- 
nated Panamanian politics in the twentieth century (see The 
Government of Torrijos and the National Guard, ch. 1). 

The National Guard implemented policies that attempted to 
reduce the most glaring discrepancies between the urban and rural 
economies. In 1968 economic activity was heavily concentrated in 
the two provinces of Panama and Colon, which accounted for over 
two-thirds of GDP and an even larger share of the country's 
manufacturing, construction, trade, transport, and communica- 
tions (see fig. 1). Residents of the metropolitan areas had access 
to relatively well-developed education, health, and other services. 
Their consumption pattern was closer to that of affluent developed 
countries; they owned most of the country's cars, refrigerators, tele- 
phones, and television sets. Their tastes and aspirations were pat- 
terned on those of United States citizens in the Canal Zone and 
the many international visitors. In contrast, rural residents had 
access to far fewer services, and their living conditions were sub- 
stantially below those of urbanites (see Rural Society, ch. 2). The 
majority of the population in the countryside had incomes of less 
than one-third of those in Panama City and Colon, and many had 
little more than one-tenth. The economic policies of the military 
leaders aimed at continued high growth of the urban economy, from 



131 



Panama: A Country Study 

which resources could be channeled to the poorer elements of the 
society to bring about greater economic and social integration. 

High growth of service industries in the terminal cities was con- 
sidered essential because of several constraints: canal-related 
activities were not expected to provide much of a growth stimu- 
lus; import substitution opportunities in manufacturing had been 
largely exhausted; and expansion of banana exports appeared 
limited by international conditions. Panama became a regional 
financial center after 1970, when the government created the Inter- 
national Financial Center. Tourism was bolstered by construction 
of additional airports, a convention center, new hotels, and resorts. 
The CFZ was upgraded, and transportation and warehousing 
facilities were also improved. 

Under Torrijos the government became more active in the goods 
sectors. In agriculture, land reform was accelerated, and coopera- 
tive farming was promoted. In industry, state-owned companies 
expanded, most notably in sugar refining, cement production, and 
electric power. Torrijos intervened more forcefully in other areas 
of the economy, such as in the setting of wages and prices; a 1972 
labor code increased job security and promoted union organization. 

These measures created a more equitable society, but often at 
the expense of efficiency and overall growth. Government expen- 
diture rose sharply, and the public sector became bloated with a 
proliferation of new government agencies. In the services sector, 
construction declined in the mid-1970s, in part because of the dis- 
incentive created by rent controls. In agriculture, considerable 
improvements in social conditions were not accompanied by 
increased incomes. Moreover, greater government participation 
and prolonged canal negotiations created difficulties and uncer- 
tainties for private investors, and private investment declined 
precipitously. 

After 1975 the government became more pragmatic and modi- 
fied its programs to stimulate economic activity. Incentives to inves- 
tors were increased. The 1972 labor code was modified in 1976 
to meet some of the objections by employers. A freeze on collec- 
tive bargaining agreements was established that in effect prohibited 
wage increases. Government-set prices were raised to encourage 
production. 

Under a structural adjustment program in 1983 and 1984, 
Panama reduced the scope of the public sector in the economy. 
In March 1986, and as preconditions for two structural adjustment 
loans from the World Bank, the government passed several major 
laws that revised its labor code, removed protective tariffs, changed 
the price structure for agricultural goods, and encouraged foreign 



132 



The Economy 



investment. In August 1986 the government launched a privatiza- 
tion program and proposed the sale of state assets worth US$13 
million. 

Monetary Policy 

Panama's monetary system is unique. United States dollar notes 
serve as the paper currency and are legal tender in Panama. The 
local currency is the balboa, which, since its creation in 1904, has 
remained tied to and equal to the United States dollar. Panama 
issues only coins corresponding in size and metallic content to 
United States coins. No foreign exchange restrictions existed in 
Panama in the mid-1980s. 

With no need for a bank to issue and protect the paper currency, 
Panama did not have a central bank. The National Bank of Panama 
(Banco Nacional de Panama — BNP), a state-owned commercial 
bank, was responsible for nonmonetary aspects of central bank- 
ing. The BNP was assisted by the National Banking Commission, 
which was created along with the country's International Finan- 
cial Center, and was charged with licensing and supervising banks. 
In 1985 the level of Ml (currency and demand deposits) was 
US$410 million, while M2 (Ml plus time deposits) was US$1.95 
billion. 

In a sense, Panama could not have a monetary policy, because 
it lacked the instruments to implement such a policy, such as money 
creation and exchange-rate manipulation. In effect, Panama's money 
supply was determined by the balance of payments, by movements 
in interest rates, and by the United States, which controlled the num- 
ber of dollars available for the country's international transactions. 

Panama's monetary system has benefited the country in numer- 
ous ways. The country has enjoyed almost automatic monetary 
and price stability. International transactions have been facilitated 
by the use of the United States dollar. No short-term transfer 
problems are associated with the balance of payments. The for- 
eign exchange constraint felt by most developing countries has been 
obviated by the dollars circulating in the economy and the ability 
to borrow. 

In the late 1980s, the financial system consisted largely of bank- 
ing. Panamanian businesses relied relatively little on public stock 
or bond issues. No formal stock exchange existed; supervised, inde- 
pendent brokers handled the limited trading in regulated financial 
certificates, stocks, and bonds. In addition, some insurance com- 
panies, savings and loan associations, and unregulated consumer- 
finance companies were formed. The country's social security fund 
invested in government bonds and various development projects. 



133 



Panama: A Country Study 



Fiscal Policy 

Panama's financial stability and international credit standing 
were determined not by monetary policy, but principally by fiscal 
policy and balance of payments. Fiscal policy was thus more impor- 
ant for Panama than for most other countries, and as a result, 
public-sector deficits were especially problematic for the govern- 
ment. 

From 1971 through 1975. the annual average for the consoli- 
dated public-sector deficit was 6.5 percent of GDP. That figure 
nearly doubled to 12.9 percent between 1976 and 1980. at the height 
of government spending on infrastructure and ambitious social pro- 
grams. In the 1980s, the figure has declined, from 10.8 percent 
in 1982 to 5.8 percent in 1984 (see table 14. Appendix A). The 
1982 figure represented an aberration, brought about by the political 
uncertainty and lack of fiscal restraint following Torrijos's death. 
Most impressively, the deficit was reduced to 2.5 percent of GDP 
in 1985. a figure even lower than the 3.5 percent targeted by the 
IMF. The reduction was brought about by increased revenues, 
reduced expenditures, and streamlined administration. 

Budget Process 

Panama developed an efficient and centralized budgetary system 
in the mid-1960s. By law. the budget had to balance, so increasing 
recourse was made to handle some expenditures outside the budget. 
One such device was the creation of autonomous government agen- 
cies. These agencies increased in numbers and importance in the 
1960s and 1970s. Their areas of operation included banking, the 
national electrical system, welfare, tourism, and gambling. Their 
budgets were excluded from that of the central government, 
although various transfers were made. 

The collection of direct taxes (on income, businesses, and cor- 
porations) was relatively efficient in Panama. Direct taxes totalled 
7 percent of GDP in 1983. Although this figure is high compared 
with those of other countries in the region, direct taxes have brought 
stability to Panama's budget system and avoided the fluctuations 
that occurred in neighboring countries, which were more depen- 
dent on import and sales taxes. In the late 1980s, only a fraction 
of Panama's revenue was derived from taxes levied on foreign trade. 

Revenues 

In the first half of the twentieth century, Panama's tax base was 
narrow, and taxes were regressive. Up to 40 percent of the urban 
work force was employed in the Canal Zone (including most of 



134 




Ship transits Miraflores Locks, Panama Canal 
Courtesy Agency for International Development 

those with higher wages) where, because of treaty arrangements, 
their incomes could not be taxed by Panama. The rural popula- 
tion was largely untaxed because of farming's subsistence nature 
and the high costs of collecting rural taxes. Before the 1940s, over 
half of the taxes were from imports, mainly consumption goods 
for urbanites. 

A 1955 treaty revision substantially expanded government 
revenue sources. The treaty permitted taxation of Panamanians 
working in the Canal Zone; it increased wage scales for those work- 
ers. A major tax reform, undertaken in 1964, made individual and 
corporate income taxes more progressive and improved the proce- 
dures for tax collection. By 1968 the tax structure compared favor- 
ably with that of other developing countries. Nearly half the tax 
revenues came from taxes on income and wealth; import duties 
and excise taxes on nonessential commodities provided an addi- 
tional 15 percent of tax revenues. 

The structure of government current revenue changed in 1979 
because of the implementation of the Panama Canal treaties. Total 
revenue increased from US$477 million in 1979 to US$986 mil- 
lion in 1985. Direct taxation grew as a share of revenue, from 
45.2 percent in 1979 to 52.6 percent in 1985. Tax receipts (direct 
and indirect taxation), as a share of revenue, dropped from 
84.9 percent in 1979 to 69.8 percent in 1985. The drop was brought 



135 



Panama: A Country Study 

about primarily by the rise in the annual income received from 
operating the canal, which accounted for about 40 percent of non- 
tax revenue in 1985. Other sources of non-tax revenue included 
royalties and taxes from the trans-isthmian oil pipeline and levies 
on gambling. 

Expenditures 

In the 1950s and most of the 1960s, the expansion of revenue 
sources and the growing economy permitted an increase in govern- 
ment expenditures. Spending remained concentrated on the canal, 
and only a small share went to agriculture, industry, or commerce. 
Government investments were not large, but revenues financed 
only a part of them, thereby requiring a substantial increase in the 
public debt to fund the remainder. Expanding private investment 
was achieved through a high rate of private savings in spite of a 
considerable increase in per capita private consumption in the ter- 
minal cities. 

In the 1970s, government current expenditures expanded dra- 
matically. Most of that increase was a result of the rise in interest 
payments on the public debt, from 2 percent to 6 percent of GDP. 
In 1979 expenditures totalled US$554 million, most of which 
covered administrative costs (52.4 percent) and interest payments 
(23.6 percent). By 1985 expenditures had risen substantially to 
US$1.4 billion, but the actual structure of government expendi- 
tures changed very little; administrative costs accounted for 56 per- 
cent of the budget, followed by interest payments at 32.3 percent. 

Between 1972 and 1983, the share of total expenditures fell in 
the categories of education (from 20.7 percent to 11.0 percent), 
health (15.1 percent to 13.1 percent), and economic services 
(24.2 percent to 13.5 percent). The share of expenditures allocated 
for housing, amenities, social security, and welfare rose during the 
same period from 10.8 percent to 12.2 percent. The biggest increase, 
however, was in the "other" category, which rose from 29.1 percent 
to 50.2 percent, mostly because of a larger debt service share 
(including interest payments and amortization). 

Human Resources and Income 

A 1985 World Bank study concluded that in spite of a relatively 
well-educated work force, unemployment was Panama's "gravest 
economic and social problem." The unemployment rate climbed 
steadily, from 8.1 percent in 1978 to 11.8 percent in 1985. The 
study predicted that the unemployment situation would further 
deteriorate unless the government took forceful measures to change 
structural rigidities in the labor code and market. Legislation 



136 



The Economy 



approved in March 1986 addressed some of the rigidities in the 
1972 labor code. Those changes may have been responsible, at least 
in part, for the lowering of the unemployment rate in 1986 to 

10 percent. 

Employment 

As a result of declining birth rates and stabilizing mortality rates, 
Panama's overall population growth rate fell from an annual aver- 
age of 2.6 percent between 1965 and 1980 to 2.2 percent between 
1980 and 1985 (see table 2, Appendix A). The working-age popu- 
lation (15 years and over) increased from 1,011,700 in 1978 to 
1,256,800 in 1985, at a rate of approximately 4 percent a year. 
From 1970 through 1984, the rate of job creation was less than 
half the growth rate of GDP. Analysts have estimated that the econ- 
omy would have to grow indefinitely by 7.5 percent a year to absorb 
new entrants into the labor market — a level almost impossible to 
sustain and far above Panama's average annual growth rates in 
the past. 

Panama's experience suggested that a government's ability to 
improve the employment situation through direct intervention in 
the labor market is severely limited. In the 1960s, an average of 
13,000 new jobs were created each year. During the recession in 
the 1970s, unemployment rose dramatically. In late 1977, the gov- 
ernment sought to reverse the deteriorating employment situation 
with an emergency jobs program. As a result, 28,000 new jobs were 
created within a year — 20,000 of which were in the public sector. 
The employment program drained government resources, however, 
and in 1980 it was terminated. Only 11,000 jobs were created 
annually between 1979 and 1982. 

In 1985 the sectoral distribution of the labor force reflected shifts 
that had taken place since the 1960s (see table 15, Appendix A). 
The services sector, led by financial services, continued to grow 
and accounted for 57.4 percent of the total labor force in 1985. 
Agriculture (including forestry and fishing) consistently experienced 
a relative decline, but still furnished 26.5 percent of the jobs. Indus- 
try's share of the labor force grew slightly between 1965 and 1980, 
but dropped to 16.1 percent in 1985. 

The public-sector share of total employment rose slightly from 

11 percent in 1963 to 13.1 percent in 1970. With the expansion 
of the public sector in the 1970s under Torrijos and the Emergency 
Employment Program in 1977, that share peaked at 25.1 percent 
in 1979. In 1982 the public sector still accounted for 25 percent 
of total employment. 



137 



Panama: A Country Study 

Wage Policy and Labor Code 

Panama's salaries were high by regional standards in the mid- 
1980s. In a 1982 study comparing salaries in manufacturing, Costa 
Rica's average monthly salary was only 41 percent that of Pana- 
ma's; Guatemala's, 71 percent; and Honduras's, 84 percent. In 
1985 the average monthly salary in Panama was US$450, but that 
figure was influenced by salaries in the canal area, which averaged 
US$1,300 per month. In 1985 the minimum wage in the metropoli- 
tan area was US$0.82 per hour; that wage was adjusted for loca- 
tion and type of industry. 

In the 1970s, the government became heavily involved in labor 
matters and intervened actively to increase wages. Although a labor 
code had existed for many years, only the minimum wage provi- 
sions were consistently enforced. In 1971 two decrees were issued; 
the first imposed an education tax and the second required 
employers to pay workers an extra month's wage each year. 

In early 1972 a broad labor code, patterned after that of Mexico, 
substantially changed labor-management relations. Workers' secu- 
rity, benefits, and bargaining power were increased considerably. 
Collective bargaining and unionization were encouraged and 
resulted in rapid growth of union membership (see Business, Profes- 
sional, and Labor Organizations, ch. 4). 

Although the 1972 labor code contributed to political stability in 
the 1970s, it substantially raised costs for employers, especially those 
in labor-intensive activities. The code also created disincentives to 
further hiring and private investment. Employers were prohibited 
from reducing a worker's salary. Therefore, piecework and assembly- 
type industries could not reward workers on the basis of produc- 
tivity. As a partial result of these rigidities, Panama's labor costs 
were among the highest in the Caribbean Basin. According to a 1984 
World Bank report, the annual cost of running a textile plant with 
500 workers was US$588,300 in Haiti; US$789,800 in Costa Rica; 
US$919,700 in the Dominican Republic; US$1,048,500 in Colom- 
bia; US$1,057,600 in Mexico; and US$1,156,700 in Panama. Only 
Jamaica's costs were higher (US$1,828,300). 

The labor code caused the effective cost of wages to rise, fueling 
inflation and discouraging private investment. The government, 
unable to devalue the currency, was forced to address the root of 
the problem — high labor costs. Law 95, which became effective 
in 1977, modified provisions of the labor code that related to job 
security and benefits. Previously, employers could only dismiss 
workers during their first two years on the job; that term was 
extended to five years. New provisions inhibited union actions, such 



138 



The Economy 



as strikes, and imposed a two-year moratorium on collective bar- 
gaining agreements, which froze wages. 

As a condition for the disbursement of a structural adjustment 
loan, the World Bank in 1985 recommended making the code more 
flexible. Panama's then-President Nicolas Ardito Barletta Vallarino 
(October 1984-September 1985) fully backed the World Bank 
recommendations. Opposition from unions and from within his 
own party, the Democratic Revolutionary Party (Partido Revolu- 
cionario Democratico — PRD), forced Ardito Barletta to withdraw 
the proposed changes and contributed to his resignation. His suc- 
cessor, Eric Arturo Delvalle Henriquez, was more successful. In 
March 1986, the Legislative Assembly approved major reforms in 
the labor code, in spite of widespread protests and a ten-day work 
stoppage by the unions. The changes included production-based 
wages, uniform rates of overtime pay, piecework provisions, 
removal of protective measures in industry, and flexible agricul- 
tural pricing. On the whole, the labor code modifications were 
aimed at making Panama's industry and agriculture more com- 
petitive internationally and expanding employment opportunities. 
Nonetheless, the economy was deemed likely to continue to experi- 
ence high unemployment, especially in the metropolitan area, where 
unemployment rates tended to be much higher than the national 
average. 

Income Distribution 

One of Torrijos's major goals was to address the problem of 
unequal income distribution, which during the 1960s was one of 
the most skewed in the world. In 1970 the richest quintile (20 per- 
cent) of the households received 61.8 percent of the income; in stark 
contrast, the poorest quintile received only 2 percent of the income. 
Results of a study conducted in 1983 by the Panamanian govern- 
ment suggested that the Torrijos policies did, in fact, make income 
distribution more equitable. The income share of the richest quintile 
fell to nearly 50 percent, while all other income groups increased 
their share: the fourth quintile (second-to-richest) from 20 percent 
to 23 percent; the third quintile from 11 percent to 15 percent; the 
second quintile from 5 percent to 9 percent; and the first (poorest) 
quintile to 3 percent. Nevertheless, despite the program's success, 
the 1983 study confirmed a continuing pattern of a relatively 
prosperous metropolitan area and poor rural provinces. 

Panama Canal 

The Panama Canal continued to play a central role in world trade 
and Panama's economy in the mid-1980s. Some 5 percent of the 



139 



Panama: A Country Study 

world's trade in goods passed through the canal, contributing 
9 percent of Panamanian GDP in 1983. This canal's location at 
one of the crossroads of international trade has spawned a plethora 
of other service-oriented activities, such as storage, ship repair, 
break bulk (the unloading of a portion or all of a ship's cargo), 
transshipment, bunkering, and distribution and services to ship 
travelers. The dynamism of the canal also was instrumental in the 
development of the CFZ, the trans-isthmian pipeline, and offshore 
financing. Evidence suggests, however, that the canal's relative 
importance to world trade is likely to continue to experience a small 
relative decline in the future, which has led Panama, together with 
the United States and Japan, to study alternatives for improving 
or replacing the canal. 

Role of the Canal from 1903 to 1977 

In 1903 the United States secured the right, by treaty, to build 
a canal across Panama (see The 1903 Treaty and Qualified Indepen- 
dence, ch. 1). The United States rejected plans to build a sea-level 
canal similar to that attempted by the French and opted instead 
for a system based on locks. Construction began in 1907 and was 
facilitated by medical work that largely eradicated yellow fever and 
reduced the incidence of malaria (see Building the Canal, ch. 1). 

Construction of the canal involved damming the Rio Chagres 
to create the huge Gatun Lake in the middle of the isthmus. Chan- 
nels were dug from each coast, and locks were built to raise and 
lower ships between sea level and Gatun Lake. Three sets of locks 
were constructed: Gatun Locks on the Atlantic side and the Pedro 
Miguel and Miraflores Locks on the Pacific side. The lock cham- 
bers were 303 meters long by 33 meters wide, which limited vessel 
size to approximately 287 meters in length and 32 meters in width. 
Distance through the canal is eighty-two kilometers, and in 1987 
transit took about fifteen hours, nearly half of which was spent in 
waiting. The canal began commercial operations in 1914. 

The United States operated the canal and set tolls from the 
beginning of operation. Tolls covered operation costs but were kept 
low to encourage canal use. Direct benefits to Panama were mini- 
mal, consisting of annual annuity payments that increased infre- 
quently, usually in response to Panamanian demands. In the 1975 
to 1977 period, the annuity payments reached US$2.3 million a 
year. Indirect benefits to Panama's economy were substantial, 
however, and included the jobs of its citizens working in the Canal 
Zone, value of goods and services sold to the Canal Zone and to 
passing ships, and expenditures by visitors. 



140 



The Economy 



Economic Implications of the 1977 Treaties 

The 1977 treaties and the related documents, which became 
effective October 1, 1979, signaled important changes for the Pana- 
manian economy. The most obvious benefit was in receipts from 
operation of the canal. Under the terms of the treaties, the govern- 
ment of Panama receives from the Panama Canal Commission: 
a fixed annuity of US$10 million; an annual payment of US$10 
million for public services such as police and fire protection, gar- 
bage collection, and street maintenance, which Panama provides 
in the canal operating areas and housing areas covered by the 
treaties; a variable payment of US$0.30 per Panama Canal net 
ton (see Glossary) for each vessel transiting the canal (in 1986 this 
amounted to US$57.6 million); and an additional annuity, not to 
exceed US$10 million, to be paid only when canal operations 
produce a profit. In 1986, for example, US$1.1 million was paid; 
in 1984, on the other hand, canal operations registered a US$4. 1- 
million loss, and no payment was made. 

The United States controls the tolls because of its majority (five 
members) on the nine-member Panama Canal Commission, which 
will operate the canal until December 31 , 1999 (see The 1977 Trea- 
ties and Associated Agreements, ch. 1). In order to encourage use 
of the canal, tolls have remained relatively low, although high 
enough to cover costs. (Under the United States law that imple- 
mented the canal treaties, the canal must be operated on a self- 
sustaining basis.) Maximum use of the canal is in Panama's interest, 
because its annuity depends on transit tonnage. Tolls were raised 
by nearly 30 percent in October 1979 and by an additional 9.8 per- 
cent in March 1983. 

Under treaty provisions, the canal administrator is an Ameri- 
can and his deputy is a Panamanian. In 1989, a Panamanian will 
become administrator and the deputy an American. In order to 
prepare Panama to assume operation of the canal in the year 2000, 
the Panama Canal Commission has encouraged the hiring and 
training of Panamanians for all types of canal-related work. The 
commission's work force was approximately 82 percent Panama- 
nian in 1987. 

According to the treaty provisions, Panama also received sub- 
stantial assets in the former Canal Zone, including three large ports 
(Colon, Cristobal, and Balboa), the railroad across the isthmus, 
two airfields, 147,700 hectares of land (including housing, utility 
systems, and streets), a dry dock, large maintenance and repair 
shops, and service facilities formerly operated by the Panama Canal 
Company (see fig. 3). Ownership and operation of the canal ports 



141 



Panama: A Country Study 

of Balboa and Cristobal were transferred to Panama in October 
1979, but a portion of these port facilities will continue to be used 
by the Panama Canal Commission for canal operations until the 
year 2000. Panama also received housing that belonged to the 
former Panama Canal Company but will continue to supply hous- 
ing to the Panama Canal Commission and the United States 
Department of Defense in decreasing amounts until 2000. Some 
assets and functions of the government of the former Canal Zone, 
such as schools and hospitals, are maintained by the United States 
Department of Defense. The Panama Canal Commission continues 
to operate utilities in the zone areas that it received under the treaty. 

The 1977 treaties had important provisions concerning employ- 
ment and wages. Panamanians would gradually replace United 
States citizens in the operation of the canal. Perhaps most impor- 
tant was the provision that former Canal Zone employees who 
became employees in Panama under the treaties were guaranteed 
wages and conditions similar to those that their position in the zone 
had commanded. In 1979 a zone employee received about twice 
the wages of someone employed in a similar position elsewhere in 
the economy. The canal areas will therefore continue to exert a 
pull on other domestic wages, making the country less competi- 
tive internationally. 

Current Use and Future of the Canal 

In both the short and the long term, the impact of the 1977 treaties 
on the economy will depend to a large extent on canal traffic. Since 
1979, when the treaties went into effect, the amount of canal traffic 
has stagnated. In 1979 the canal was transited by 13,056 ships; 
by 1984 that number had fallen to 1 1,230 — the lowest number in 
2 decades. Cargo tonnage also dropped during the same period, 
from about 154 million to about 140 million tons. Despite the decline 
in the number of ships and cargo tonnage, toll revenues expanded 
over the period from US$208 million to US$298 million because 
of the toll increase in March 1983. 

The decline in canal traffic was in large measure a result of the 
opening of the trans-isthmian oil pipeline, which carries Alaskan 
North Slope oil. In 1983 the pipeline diverted 30 million tons of 
oil from the canal. In terms of Panama's economy, the diversion 
of oil from the canal to the pipeline did not cause alarm as it was 
little more than a transfer of services. 

Some observers expressed concern that the canal had seen its 
best days and that it would decline in importance over the long 
run. Latin American trade, much of which passes through the canal, 
has stagnated because of prolonged regional recession and balance 



142 



Thatcher Bridge over Panama Canal 
Courtesy Pan American Union 

of payments constraints resulting from the regional debt crisis. 
Many supertankers and bulk cargo carriers are too big for the canal. 
Even some smaller vessels sought to avoid the delays associated 
with transiting the canal. Increased tolls also lowered the demand 
for canal usage. Many coal and banana producers shunned the canal 
and shipped to Europe from the Caribbean Basin and to the Pacific 
Basin from the west coast of Latin America. In addition, the canal 
faced competition from Mexican and United States land bridges 
(roads or railroads linking Atlantic and Pacific ports). Standardized 
cargo containers have made land bridges an increasingly attrac- 
tive option, even though the distances involved are much greater 
(the United States land bridge is over 5,600 kilometers long) than 
across the canal. The concern over the future of the canal was par- 
tially allayed by the increase in total canal traffic between 1 984 and 
1986. In 1986 11,925 ships transited the canal, carrying 139 mil- 
lion long tons of cargo and generating US$321 million in tolls and 
revenues. In 1987 canal tolls and revenues totaled US$330 million. 
The increase in 1986 was due in large measure to increased auto- 
mobile trade. 

In 1982 Panama joined the United States and Japan, the two 
principal users of the canal, in an agreement to establish a tripar- 
tite commission aimed at studying improvements in or alternatives 
to the canal. The US$20-million study was expected to be ready 



143 



Panama: A Country Study 



in 1991. One modest proposal, at a cost of US$200 million, was 
that of widening the canal at the Gaillard Cut, its narrowest chan- 
nel. The Gaillard Cut measured approximately 100 meters when 
the canal opened in 1914, and in the 1960s it was broadened to 
about 165 meters. The proposal called for doubling the width of 
the Gaillard Cut. A more extensive plan, at a cost of US$500 mil- 
lion, proposed widening the entire canal by 16 meters to allow for 
uninterrupted 2 -way traffic along the waterway. The canal's exist- 
ing capacity was forty-two vessels a day; the less expensive proposal 
would accommodate fifty ships. The most ambitious plan, however, 
was that for a second, sea-level canal, which could handle even the 
largest supertankers without the use of locks. This plan's estimated 
cost was US$20 billion, considered prohibitive in the light of fore- 
seeable toll revenues. Alternatives to a second canal included an 
improved railroad system, an express highway for container traffic, 
and additional pipelines. 

Services 

Panama's services sector dwarfed agriculture and industry, and 
its share of GDP was growing in the late 1980s. In 1965 services 
accounted for about 63 percent of GDP; by 1985 that share had 
risen to about 73 percent. In the latter year, transportation con- 
tributed 25.3 percent of GDP, followed by financial services (14 per- 
cent), government services (13.2 percent), wholesale and retail trade 
(12.3 percent), and other services (8.1 percent). 

Transportation and Communications 

Transportation was the single most important contributor to 
Panama's service-oriented economy. The Panama Canal has given 
great impetus to other transportation services, and many of those, 
such as the oil pipeline and the CFZ, have achieved a dynamism 
of their own. In the area of communications, Panama was served 
by 213,400 telephones in 1984, in addition to 142 radio stations, 
6 television channels, and 6 daily newspapers. 

The transportation sector has been further broadened by a net- 
work of roads, ocean ports, and airports (see fig. 8). The major 
roads were the Pan-American Highway and the Trans-isthmian 
Highway (also known as the Boyd-Roosevelt Highway) between 
Panama City and Colon. In 1984 Panama had 9,535 kilometers 
of roads, of which 32 percent were asphalted. Panama had only 
three railroads: two in the west originating in David and Almirante 
and extending to the Costa Rican border, and one linking Panama 
City and Colon. The General Omar Torrijos Herrera International 



144 



The Economy 



Airport (commonly known as Tocumen International Airport), 
located near Panama City, served international airlines. 

Panama had fourteen ports, the most important of which were 
Balboa on the Pacific side and Cristobal on the Atlantic, located 
at the entrances to the canal. Together, the two ports served 70 per- 
cent of the international ships arriving in Panama in 1983. The 
two ports, however, have declined in regional importance since the 
1970s, in part because of technological change and competition. 
In their prime, Balboa and Cristobal were transshipment centers 
of break-bulk traffic. In the 1970s, containerization became 
widespread; large ships could break the bulk cargo into containers 
at any port offering container facilities, at which point the cargo 
could be stored or transshipped through the canal on a smaller ves- 
sel. Miami and Kingston developed sophisticated container facili- 
ties and contributed to the precipitous decline (from 145,000 tons 
in 1969 to 38,707 tons in 1980) in transshipment traffic through 
Balboa and Cristobal. In order to compete more effectively, US$18 
million was spent on Cristobal in the early 1980s, making it the 
first container port in Panama. Later plans call for upgrading eight 
other ports as well. 

Oil Pipeline 

The trans-isthmian oil pipeline served as a transshipment point 
for Alaskan North Slope oil en route to the east coast of the United 
States. The pipeline, completed in October 1982, was 81 kilometers 
long and had a capacity to move 850,000 barrels of oil a day. The 
pipeline joined two terminals owned by Petroterminales de Panama, 
a joint venture between the Panamanian government and a United 
States company, Northville Industries. 

In 1982 the pipeline generated US$69 million, a figure that rose 
to US$138.8 million in 1986. The pipeline accounted for 7.4 per- 
cent of Panama's GDP in 1985, when value added peaked at 
US$158.7 million; in 1986 its share of GDP fell to 6 percent. In 
fact, the pipeline's net contribution to GDP has been small. Despite 
the increase in activity since 1982, the pipeline has never reached 
capacity; its daily throughput in mid- 1987 was 575,000 barrels. 
Moreover, if the pipeline had not been built, the transportation 
of oil across the isthmus could still be accommodated by the canal. 
The pipeline did, however, free up the canal and was expected to 
make a greater net contribution to GDP. 

Panama's oil pipeline faced competition from the All American 
Pipeline, which extended from Santa Barbara, California, to 
McCarney, Texas, where it connected with other pipelines that 
led to the east coast of the United States and to the Gulf of Mexico. 



145 



The Economy 



Nearly completed in 1987, the new pipeline, owned by Celeron 
Oil Company, was the longest in the United States. Whether the 
American pipeline would be able to compete effectively with 
Panama remained uncertain; overland pipeline transport was gener- 
ally more expensive than sea transport in large tankers. 

Colon Free Zone 

The CFZ has grown rapidly to become the second largest free 
zone in the world, after Hong Kong. The CFZ, in existence since 
1953, was a base for 460 companies in the late 1980s. Goods from 
foreign countries were landed and stored or repackaged there and 
shipped onward without being subject to Panama's customs duties. 
Among the CFZ services offered were commercial intermediation, 
break bulk, warehousing, assembly, and transshipment. In addi- 
tion to its excellent location, foreign firms were attracted to the 
CFZ because of good transport, communications, and banking ser- 
vices. A state-owned corporation operated the free zone, provid- 
ing the necessary infrastructure and services. 

The CFZ has contributed greatly to Panama's economy. In 1983 
the CFZ provided direct employment for 6,000 workers. CFZ earn- 
ings in export services were second only to the canal. In 1985 CFZ 
imports and re-exports totalled US$3.3 billion, down from a peak 
of US$4.3 billion in 1981 ; value added in the CFZ made a net con- 
tribution of 2.8 percent to GDP. The declining figures reflected 
the Latin American recession and the concomitant fall in regional 
trade. The CFZ linked producers in industrialized countries, which 
in 1984 supplied 60 percent of CFZ imports, primarily with Latin 
American countries, and accounted for 59 percent of CFZ exports. 
Since 1983 Japan's exports to the CFZ have surpassed those of the 
United States; in that year, Japan exported 21 percent of the goods 
entering the CFZ, followed by the United States (15.5 percent), 
Taiwan (10 percent), and Hong Kong (9.3 percent). 

Observers believed that dependence on the Latin American mar- 
kets might limit the growth potential of the CFZ. Other constraints 
to growth included competition from Miami and the tendency of 
Latin American countries to circumvent the CFZ through bilateral 
transactions. The greatest potential for CFZ growth lay in expand- 
ing manufactured exports, especially to the United States, under 
the terms of the Caribbean Basin Initiative (CBI). Until the mid- 
1980s, the value added for manufacturing in the CFZ was rather 
small; transport, storage, and warehousing contributed the largest 
share. CFZ activities declined between 1982 and 1984, but stabi- 
lized in 1985 and expanded by 15 percent in 1986. 



147 




146 



Panama: A Country Study 
Finance 

Panama was considered the most important international banking 
center in Latin America in the late 1980s. In 1970 only 28 banks 
operated in Panama's international banking center; by 1987 there 
were 120, with assets of nearly US$39 billion. The growth in Pana- 
ma's Eurocurrency (see Glossary), or offshore banking, has con- 
tributed to the country's relative prosperity and accentuated the 
importance of the services sector in the economy. As an example 
of offshore banking, the Central Bank of India established an office 
in Panama in the late 1970s to finance its trade with Brazil. 

The idea of opening Panama up to international banking was 
the brainchild of Ardito Barletta, who, as Torrijos's minister of 
planning in 1969, sought to diversify Panama's economy away from 
the canal and the CFZ. His timing could not have been better; 
Panama benefited greatly from the recycling of petrodollars after 
the 1973 and 1979 oil price hikes. Panama also became a center 
for flight capital from Latin America and tax evasion dollars from 
the United States and other countries. 

Panama's success in attracting offshore banking has been attrib- 
uted to the political stability of the Torrijos years, the dollar-based 
economy, the country's tradition as a trade and business center, 
and a policy of low taxes on deposits and income. Most impor- 
tantly, however, Panama's success has been a result of its strin- 
gent secrecy laws. In 1970 banking laws were liberalized, secrecy 
was guaranteed, currency controls were abolished, and few restric- 
tions were imposed on bank transactions. Panama's banking com- 
mission had the sole right to conduct general inspections of bank 
records, and banks were not allowed to disclose information con- 
cerning their customers. Ardito Barletta once claimed that Pana- 
ma's secrecy laws were stricter than those of Switzerland. 

Observers disagreed on the benefits derived from offshore bank- 
ing. Banks were required to maintain offices in Panama, where 
they generated employment for 10,000 Panamanians, slightly more 
than the number of jobs associated with the canal. Approximately 
US$200 million has been injected into the domestic economy each 
year through loans. Some critics have charged, however, that the 
offshore banking has "denationalized" Panama's economy. Accord- 
ing to this line of thought, offshore banking limits a nation's political 
and economic autonomy because the government must maintain 
a favorable investment climate. International capital is highly fun- 
gible and is subject to flight in the event of major political or eco- 
nomic disturbances, as occurred in the latter part of 1987. 



148 




Panama City street 
Courtesy Organization of American States 



149 



Panama: A Country Study 

Total deposits in the offshore banks peaked at US$47 billion at 
the end of 1982 and then fell, primarily as a reflection of Latin 
America's financial crisis. In 1984 numerous United States banks 
reduced their Panamanian assets, such as Citibank (by 70 percent) 
and Bank of America (50 percent). Some banks (Chase Manhat- 
tan and Citibank) also reduced their operations within Panama, 
while others (Security Pacific and Libra Bank International, a 
London-based consortium) actually left Panama. This drain, 
however, was partially offset by the increased exposure of other 
United States banks, such as First National Bank of Chicago, and 
by the influx of Japanese banks, many of which have made Panama 
their Latin American banking headquarters. Also, "narcodollars" 
(income derived from the sale of illegal drugs) reportedly were trans- 
ferred to Panama from Caribbean havens that were placed under 
closer scrutiny. 

In 1985 the largest banks in Panama's International Financial 
Center were First National Bank of Chicago (assets worth 
US$3.6 billion); Banco de la Nacion Argentina (US$2.8 billion); 
American Express Bank (US$2.4 billion); BNP (US$1.4 billion); 
Deutsche Sudamerikanische Bank (US$1.3 billion); Credit Lyon- 
nais, Sanwa Bank, Bank of Tokyo, and Sumimoto Bank (US$1.2 
billion); and Banco do Brasil (US$1.1 billion). 

The foreign share of total deposits in the International Finan- 
cial Center declined from 94 percent in 1979 to 85 percent in 1985. 
The assets of 14 Panamanian banks remained virtually constant, 
at US$5.5 billion from 1982 through 1984; their relative share of 
total deposits increased from 10 percent in 1982 to 15 percent in 
1985 as a result of the reduction of foreign deposits. Founded in 
1904, the BNP was the country's most important bank. It served 
as the government's depository and fiscal agent in addition to being 
the largest commercial bank with forty-seven branches through- 
out the country and an agency in New York. The other major state- 
owned financial institutions were a savings bank (established 1934), 
a mortgage bank (1973), an agricultural development bank (1973), 
and a development finance company (1975). The latter two insti- 
tutions were founded to provide longer-term credit for agricultural 
and industrial development than was generally available from the 
commercial banks. 

Panama's offshore banking confronted severe challenges in the 
late 1980s. Firstly, it faced charges that it had become the center 
for laundering drug money. Given the secretive nature of Panama's 
banking legislation, substantiating such charges was difficult. 
According to the United States Department of the Treasury, an 
estimated US$600 million in drug-related money is laundered 



150 



The Economy 



through Panama's offshore banking system annually. Since 1985 
the United States has pressured Panama to sign the Mutual Legal 
Assistance Treaty (MLAT), which lifts banking confidentiality. A 
similar treaty has been signed by the Cayman Islands, the Nether- 
lands Antilles, the Turks and Caicos Islands, Switzerland, Tur- 
key, and Italy. Although Panama has resisted any changes in its 
banking secrecy regulations, fearing negative repercussions on its 
International Financial Center, it did make major concessions in 
a law passed on December 26, 1986. The new law had three basic 
provisions: penalties for drug trafficking were made more severe; 
extradition procedures were established; and money-laundering was 
made a crime. The measures fell short of those established in the 
MLAT, but they were expected to deflect United States criticism, 
at least in the short term (see Other Aspects of Panamanian-United 
States Relations, ch. 4; Involvement in Political and Economic 
Affairs, ch. 5). 

A second major challenge to offshore banking in Panama was 
that of political instability. The political turmoil of mid- 1987 
damaged Panama's reputation as a safe haven. International banks 
were a major target for attacks by progovernment groups seeking 
to blame foreign elements for the political disturbances. In June 
the government further shattered investor confidence when it sus- 
pended interest payments on its debt to foreign governments, a 
de facto default. One international bank lowered Panama's rating 
on the political risk scale, and First National Bank of Chicago closed 
its Panama branch. Perhaps one-tenth of the estimated US$40 mil- 
lion in deposits left the country as capital flight, creating a liquidity 
crisis for the country. 

Tourism 

Panama offered a wide range of tourist attractions and gambling 
facilities. In 1983 the National Tourism Council was founded to 
coordinate national tourism in conjunction with the Panamanian 
Tourism Institute. The number of tourists peaked in 1980 at 
377,600 and declined to 302,400 in 1984. Despite the reduction, 
the expenditures by visitors (in addition to tourists, this category 
includes travel that is related to business and education) remained 
virtually unchanged, at about US$130 million per year from 1979 
to 1983. During the same period, travelers in transit (including 
those only changing planes and those who remained in Panama 
up to 48 hours) injected an additional US$38 million per year into 
the economy. 



151 



Panama: A Country Study 
Agriculture 

For centuries agriculture was the dominant economic activity 
for most of Panama's population. After construction of the canal, 
agriculture declined; its share of GDP fell from 29 percent in 1950 
to just over 9 percent in 1985. Agriculture has always employed 
a disproportionate share of the population because of its labor- 
intensive nature. Nevertheless, the percentage of the labor force 
in agriculture has also dropped, from 46 percent in 1965 to 26 per- 
cent in 1984. 

In 1985 crops accounted for 63.3 percent of value added in 
agriculture, followed by livestock (29.5 percent), fishing (4.3 per- 
cent), and forestry (2.9 percent). Despite its relative decline, agricul- 
ture was the main supplier of commodities for export, accounting 
for over 54 percent of total export earnings in 1985. The agricul- 
tural sector satisfied most of the domestic demand. The principal 
food imports were wheat and wheat products, because climatic con- 
ditions precluded wheat cultivation. In 1985 the value of food 
imports was US$108.7 million (8.8 percent of total imports), only 
half that of food exports. 

Between 1969 and 1977, the government undertook agrarian 
reform and attempted to redistribute land. The expanded role of 
the state in agriculture improved social conditions in rural areas, 
but long-term economic effects of the agrarian reform were modest. 
In the early and mid-1980s, the government sought to reverse the 
decline of agriculture by diversifying agricultural production, lower- 
ing protection barriers, and reducing the state's role in agricul- 
ture. In March 1986, the government instituted major changes in 
the agricultural incentives law and removed price controls, trade 
restrictions, farm subsidies, and other supports. 

Land Use 

Panama's land area totals approximately 7.7 million hectares, 
of which forests account for 4. 1 million hectares, followed by pasture 
land (1.2 million hectares) and permanently cultivated fields 
(582,000 hectares). About 2 percent of the land was used for roads 
and urban areas. Nearly all of the cultivated and pasture land was 
originally forested. A large amount of virgin land has been opened 
up for cultivation by the Pan-American Highway. 

Panama's climate and geology impose major constraints on the 
development of agriculture. Heavy rainfall throughout the year 
prevents cultivation of most crops on the Atlantic side of the con- 
tinental divide (see Regions of Settlement, ch. 2). The Pacific side 
has a dry season (December to April) and accounts for most of the 



152 



The Economy 



cultivated land (see fig. 9). The mountainous terrain also restricts 
cropping. In addition, the country does not have high-quality soils. 
Most of the areas classified as cultivable are so considered on the 
assumption that farmers will practice conservation measures, but 
many do not. The topsoil is thin in most areas, and erosion is a 
serious problem. Most of the nearly level areas conducive to culti- 
vation are in the provinces of Los Santos, Code, Veraguas, and 
Chiriquf. 

A further constraint on production is the practice of slash-and- 
burn cultivation, in which trees, brush, and weeds are cut and then 
burned on the patch of ground selected for cultivation. Indians 
utilized the slash-and-burn method for centuries, and the Spanish 
made few changes in techniques. In the 1980s, most farmers prac- 
ticed a slash-and-burn type of shifting cultivation. The thin and poor- 
quality topsoil yielded an initially good harvest, followed by a smaller 
harvest the second year. Typically, the land was cultivated for only 
two years, and then the farmer repeated the process on another plot, 
allowing the first plot to rest ten years before refarming. 

Much of the farming was of a subsistence nature and accom- 
plished with a minimum of equipment. Plowing was generally not 
practiced on subsistence farms; the seeds were placed in holes made 
by a stick. Tree cutting, land clearing, weeding, and harvesting 
were accomplished with a few kinds of knives, principally the 
machete and the axe, which comprised the major farm implements. 

Land Tenure and Agrarian Reform 

Before the 1950s, land was readily available to anyone who was 
willing to clear and plant a plot. The cutting and clearing of forests 
greatly accelerated as the population increased. By the 1960s, sub- 
sistence farmers sometimes reduced the rest period of cleared plots 
from ten years of fallow to as few as five years because of the unavail- 
ability of farm land. The reduced fallow period diminished soil fer- 
tility and harvests. Consequently, cropped acreage peaked during 
the 1960s. The hard life and low income of farmers accelerated 
the exodus of workers from the countryside to the cities (see Rural 
Society and Migration, ch. 2). 

The long period when new land was easily obtainable contributed 
to a casual attitude toward land titles. In 1980 only 32.9 percent 
of the 151,283 farms had such titles. The decline in available agricul- 
tural land has made land titling more necessary. Moreover, inse- 
cure tenure has been a particularly severe constraint to improved 
techniques and to commercial crop production. The cost of titling 
a piece of land, however, has been too high for most subsistence 
farmers. 



153 



Panama: A Country Study 




154 



The Economy 



Between 1969 and 1977, the government attempted to redistrib- 
ute land. In the late 1980s, however, the distribution of land and 
farm incomes remained very unequal. In 1980 58.9 percent of farms 
had an annual income below US$200. The issue of unequal land 
distribution, however, has not been as explosive in Panama as in 
many other Latin American countries. This was because of the 
service-oriented nature of the economy and because about half of 
the population lived in or near Panama City. Also, about 95 per- 
cent of all farm land was owner-operated, and virtually all rural 
families owned or occupied a plot. 

In an effort to redistribute land, the government acquired 500,000 
hectares of land and expropriated an additional 20 percent of the 
land. About three-quarters of the land acquired was in the provinces 
of Veraguas and Panama. By 1978 over 18,000 families (about 
12 percent of rural families in the 1970 census) had access to either 
individual plots or collectively held land as a result of the redistri- 
bution. The land acquisition created uncertainty, however, and 
adversely affected private investment in agriculture, slowing produc- 
tion in the 1970s. 

As part of its agrarian reform, the government placed heavy 
emphasis on organizing farmers into collectives for agricultural 
development. Several organizational forms were available, the two 
most important being asentamientos (settlements) and juntas agrarias 
de production (agrarian production associations). The distinctions 
between the two were minor and became even more blurred with 
time. Both encouraged pooling of land and cooperative activity. 
In some instances, land was worked collectively. Other organiza- 
tional forms included marketing cooperatives, state farms, and 
specialized producers' cooperatives for milk, chickens, or pigs. 
Growth of these agricultural organizations slowed by the mid-1970s, 
and some disbanded, as emphasis shifted to consolidation. 

The cost of agrarian reform was high. The government chan- 
neled large amounts of economic aid to organized farmers. Rural 
credit was greatly increased; farm machinery was made available; 
improved seeds and other inputs were supplied; and technical assis- 
tance was provided. Cooperative farm yields increased, but these 
higher yields were not impressive, considering the level of invest- 
ment. Despite the high costs of the government programs, incomes 
of cooperative farmers remained low. After the mid-1970s, the 
government changed its policy toward cooperatives and stressed 
efficiency and productivity instead of equity. 

Although the economic results of agrarian reform were disap- 
pointing, the social conditions of most farmers improved. The 
number of rural residents with access to safe water increased by 



155 



Panama: A Country Study 

50 percent between 1970 and 1978. Improved sewerage facilities, 
community health programs, and rural clinics reduced mortality 
rates considerably. Major expansion of educational facilities, includ- 
ing education programs for rural residents, helped rural Panama- 
nians become better educated and more mobile. 

Crops 

The crops category is the largest within agriculture, but its share 
has fallen slightly, from 66.1 percent in 1980 to 63.3 percent in 
1985. During that period, crop production was erratic, and annual 
growth averaged a mere 1.7 percent. The major crops and foreign 
exchange earners were bananas and sugar. In the 1980s, however, 
crop production became increasingly diversified. The production 
of corn, coffee, beans, and tobacco has increased, as has that of 
such nontraditional products as melons and flowers. Fruits (espe- 
cially citrus), cacao (the bean from which cocoa is derived), plan- 
tains, vegetables, and potatoes were produced on a minor scale; 
nevertheless, they were important cash crops for small farms. 

Bananas were the leading export item, and in 1985 accounted 
for 23 percent (US$78 million) of total exports. In that year, the 
Chiriqm Land Company, a subsidiary of United Brands (formerly 
United Fruit Company), produced 70 percent of all bananas, fol- 
lowed by private Panamanian producers (25 percent) and the state- 
owned Corporacion Bananera del Atlantico (5 percent). The volume 
of bananas produced in Panama peaked in 1978 and slowly declined 
in the 1980s. Observers doubted that United Brands would expand 
its production in Panama because bananas could be produced more 
cheaply in Costa Rica and Ecuador. 

The history of banana production in Panama virtually coincides 
with that of United Brands, which has been in Panama since 1899. 
The company built railroads, port facilities, and storage areas for 
the processing and export of bananas. In the 1930s, a disease seri- 
ously curtailed banana production. In the 1950s, disease-resistant 
plants were developed, and production increased rapidly. In the 
early 1970s, a "banana war" erupted when banana-producing 
countries disagreed among themselves and with United Brands 
about an export tax on bananas. Panama threatened to take over 
United Brands' plantations. An agreement was reached in 1976 
to tax banana exports. In that year, the tax provided the govern- 
ment with US$10 million, nearly 4 percent of all revenues. In 
addition, United Brands sold all 43,000 hectares of land that it 
owned in Panama to the government; payment was in tax credits. 
The government leased back to United Brands over 15,000 hect- 
ares for banana production and export operations. Part of the 



156 



Harvesting bananas 
Courtesy Organization of American States 



157 



Panama: A Country Study 

excess land went to the government's newly established banana 
companies. 

Sugar has traditionally been Panama's second largest crop in 
terms of production and export value. Panama consumed about 
half its sugar output and exported most of the rest to the United 
States. The production of sugar in Panama increased during the 
1970s, peaked in 1982 at 260,000 tons, and fell to 165,000 tons 
in 1986. The dramatic decline after 1982 was because of low world 
prices and the rapid reduction in the United States quota from 
81,200 tons in 1983 to 26,390 tons in 1987. Annual sugar exports 
earned an average US$40 million from 1975 through 1981 but fell 
steadily from US$41.3 million in 1983 to US$33 million in 1984, 
US$27.3 million in 1985, and US$22 million in 1986. 

The state has been heavily involved in Panama's sugar produc- 
tion. Under the 1983-84 structural adjustment program, however, 
the state has privatized, closed, and tried to sell numerous sugar 
mills. Nonetheless, of the six major sugar mills in Panama, four 
were still under state control in 1987. The largest was the Cor- 
poracion Azucarera La Victoria, which in 1985 accounted for 
64 percent of total sugar production. Several small mills operated 
throughout the country, but their output was for domestic consump- 
tion only. 

The production of coffee has steadily expanded, from 7,000 tons 
in 1981 to 11,000 tons in 1985. Coffee was Panama's third-largest 
crop export earner. In 1985 it earned US$15.6 million, which was 
4.6 percent of total export earnings. 

Rice and corn production also increased in the early 1980s. 
Panama imported rice in the 1970s but by the mid-1980s experi- 
enced a surplus, as a result of the expansion of production in the 
early 1980s, from 178,000 tons in 1982 to 200,000 tons in 1985. 
Panama produced 75,000 tons of corn in 1985, but in the same 
year it imported about 40 percent of the corn it consumed, some 
of which was used for poultry feed. The government granted incen- 
tives to increase corn production. 

Livestock 

Panama was virtually self-sufficient in livestock production, which 
included cattle, pigs, chickens, eggs, and milk. Beef was by far the 
most important product, and output was growing slowly in the 
1980s. Between 1981 and 1985, the number of cattle slaughtered 
rose from 239,000 to 295,000; during the same period, the total 
stock of cattle increased only slightly, from 1.43 million head to 
1.44 million head. Milk production remained steady between 1981 
and 1985, averaging 89,140,400 liters a year. 



158 



The Economy 



Cattle raising for both meat and milk was common on land on 
the Pacific watershed and was concentrated in the provinces of 
Chiriqm, Los Santos, and Veraguas. Most ranches produced both 
meat and milk, although some specialized in dairy farming. The 
majority of ranches had fewer than 100 hectares. Cattle were almost 
entirely grass fed. The grasslands were not particularly produc- 
tive, lacking added nutrients and other improvements; on aver- 
age, more than one hectare is required for each head of cattle. Low 
government credits, competition from regional cattle producers 
(especially Colombia), and United States market restrictions have 
hindered the growth of Panama's cattle production. 

From 1982 to 1985, poultry production grew rapidly, from 
4.5 million chickens to 6.1 million. During the same period, annual 
egg production also increased, from 28,859 dozen to 31 ,205 dozen. 
Pork production has remained steady; the number of pigs in 1985 
totalled 210,000. 

Fishing and Forestry 

Fishing was more important to Panama's economy than forestry, 
supplying the domestic market and providing substantial export 
earnings. The waters of the two oceans afforded a variety of fish 
and crustaceans. Shrimp provided 84 percent of the total value of 
fishing, and their share of total export earnings increased from 
16 percent in 1983 (US$51 .4 million) to 18 percent in 1985 (US$60 
million). Fish production increased from 117 million kilograms in 
1981 to 127 million kilograms in 1985. The most important fish 
products were anchovies and herring, which were processed into 
fish meal and oil. Lobster accounted for a minuscule share of fish- 
ing products. 

Large portions of the country's forests are commercially 
exploited. Forestry production remained virtually constant in the 
early 1980s, when the annual forestry output averaged 2,047 cubic 
meters. The government has implemented a program of reforesta- 
tion, but the pace of depletion has exceeded that of replanting. 
Deforestation was most pronounced along the canal, posing a long- 
term threat to the canal's water level. 

Industry 

Industrial development has been uneven in Panama. Between 
1965 and 1980, industry grew at an average annual rate of 5.9 per- 
cent; between 1980 and 1985, that rate was negative 2.2 percent. 
In 1985 industry accounted for nearly 18 percent of GDP. Within 
the industrial sector, manufacturing (based primarily on the process- 
ing of agricultural products) and mining contributed 9.1 percent 



159 



Panama: A Country Study 

to GDP, followed by construction (4.7 percent) and energy 
(3.4 percent). 

Several factors contributed to the rapid expansion of industry 
between 1950 and 1970. A 1950 law granted liberal incentives and 
protection from imports to investors, including those in manufac- 
turing. An agreement in 1955 phased out a number of manufac- 
turing activities in the Canal Zone and opened a market for such 
Panamanian products as bakery goods, soft drinks, meats, and bot- 
tled milk. Foreign investment went into relatively large plants for 
oil refining, food processing, and utilities. The government invested 
in the infrastructure, especially in roads and the power supply. A 
building boom increased the demand for construction materials and 
furniture, further stimulating manufacturing. Management gained 
experience during the period, and labor productivity increased. 

The stagnation in industrial growth during the 1970s resulted 
from external and internal causes that reduced private investment. 
Externally, the rise of oil prices, recession in the industrialized coun- 
tries, and uncertainty relating to the future status of the canal 
clouded the investment climate. Domestically, a recession reduced 
construction activity and lowered the demand for manufactured 
goods. The government built cement and sugar mills to compete 
with privately owned mills; it also implemented an agrarian reform 
program, instituted a liberal labor code, and enforced rent control 
laws. These measures created apprehension on the part of investors, 
and although the government granted tax holidays, export incen- 
tives, and protection from imports, private investment declined. 
A key goal of the structural adjustment program of the mid-1980s 
was to increase private investment in industry and to make Pana- 
ma' s industry competitive internationally. 

Manufacturing 

In 1984 the value added in manufacturing totaled US$344 mil- 
lion, distributed approximately as follows: food and agriculture, 
42 percent; textiles and clothing, 11 percent; chemicals, 8 percent; 
machinery and transport equipment, 1 percent; and other manufac- 
turing, 37 percent. Manufacturing was almost completely oriented 
toward the domestic market; manufactured goods accounted for 
a mere 2.5 percent of the value of exports of goods and nonfactor 
services. Production was concentrated in Panama City (over 
60 percent of establishments), with smaller industrial centers at 
David (10 percent) and Colon (5 percent). 

Industrial development has faced the serious constraints of the 
small size of the domestic market, lack of economies of scale, high 
labor and unit costs, and government policies of high protection 



160 




Field-workers harvest pineapples 
Courtesy Inter-American Development Bank 



against imports. The greatest growth in manufacturing occurred 
in response to import-substitution industrialization in the 1960s 
and 1970s. By the 1980s, however, the "easy phase" of import- 
substitution industrialization was over; a second phase, that of 
industrial deepening, was more difficult to carry out in such a small 
economy. The economy's obvious limitations in manufacturing 
have been partially offset by an educated labor force, highly devel- 
oped internal and external transport and communication links, 
extensive financial facilities, the country's centralized location, and 
relatively few restrictions on foreign investment. The Panama Canal 
treaties provided additional space for expanding the CFZ, an ideal 
location for light industry and assembly plants. 

During the 1970s, the public sector took the lead in manufac- 
turing by building a cement plant, sugar mills, and iron and steel 
works. The structural adjustment program of the mid-1980s sought 
to reduce the state's role in the economy and to make the private 
sector the engine of manufacturing growth. The industrial incen- 
tives legislation of March 1986 encouraged manufacturers to be 
export-oriented by removing tax exemptions for those firms that 
produced for the domestic market. The legislation also provided 
for maintaining tax exemptions on imported inputs, income, sales, 
and capital assets for those firms that produced exports. The legis- 
lation also lowered import barriers over a period of five years in 



161 



Panama: A Country Study 

an effort to increase the productivity and competitiveness of local 
manufacturing. In addition, new companies were given tariff reduc- 
tions of up to 60 percent for the first 7 years and 40 percent 
thereafter. 

Since the early 1970s, industrial expansion and job creation have 
lagged behind the growth of the labor force. In the 1960s, an aver- 
age of 2,400 jobs was created each year in manufacturing. The 
rigidities of the industrial incentives law in 1970 and the labor code 
in 1972 contributed to a decline in manufacturing employment; 
an average of only 530 new jobs was created each year in manufac- 
turing during the 1970s. The changes introduced in the labor code 
in March 1986 sought to reverse the antiemployment bias in 
manufacturing. The slight reduction in the overall unemployment 
rate in 1986 may be partially attributed to the labor code revisions. 

Despite government measures to stimulate manufacturing, Pana- 
ma' s becoming a major industrial center seemed unlikely. Under 
the CBI, some potential arose for the development of twin-plant 
operations, especially in association with firms in Puerto Rico, 
where labor costs were higher than in Panama. In general, however, 
Panama was unable to compete effectively with Mexico, given the 
latter country's low labor costs and proximity to the United States 
market. Also, the possibility existed that industries from East Asia, 
especially clothing manufacturers, might increasingly relocate to 
Panama, in an attempt to circumvent United States quotas. This 
possibility was limited by uncertainty over the United States 
response. The United States Department of Commerce had called 
for the reduction of United States imports from Panama, precisely 
in those products manufactured by Asian investors. 

Mining 

Despite the variety of mineral deposits and the potential of cop- 
per production, the contribution of mining to GDP was negligi- 
ble, accounting for only US$2.5 million in 1985, down from a 1982 
peak of US$4.1 million (both figures at 1970 market prices). The 
production was restricted to the extraction of limestone, clays, and 
sea salt. A state company, Cemento Bayano, produced limestone 
and clay and operated a cement plant with an annual capacity of 
330,000 tons. 

In the 1970s, several copper deposits were discovered. The larg- 
est was Cerro Colorado, in Chiriquf, which if developed would be 
one of the largest copper mines in the world. Commercial devel- 
opment of the Cerro Colorado project was in the hands of the state- 
owned Corporacion de Desarrollo Minero Cerro Colorado, which 
had a 51 -percent stake in the operation, and of Rio Tinto-Zinc, 



162 



High-rise condominiums and office buildings in Panama City 
Courtesy Inter-American Development Bank 

with 49 percent. In the 1970s, ore reserves at Cerro Colorado were 
estimated at nearly 1.4 billion tons (0.78 copper content). In the 
late 1970s, the cost of developing the mines was estimated at US$1 .5 
billion, nearly equal to total GDP at that time. Commercial exploita- 
tion was postponed because of low copper prices on the world market 
but could be undertaken if copper prices rose substantially. 

Construction 

Construction boomed in the 1970s as a result of government 
spending on infrastructure and housing. In the early 1980s, with 
the building of the trans-isthmian oil pipeline and the Edwin 
Fabrega Dam and associated hydroelectric plant, construction con- 
tinued to grow, from US$124.3 million in 1980 to US$154.7 mil- 
lion in 1982. Construction fell dramatically in 1983 to US$106.4 
million, when the government cut expenditures, and continued to 
decline in 1984 (US$94.4 million) and 1985 (US$93.4 million). 
In 1986 the decline was finally reversed, as the sector registered 
5 -percent growth, generated primarily by private residential build- 
ing. Thus, the structural adjustment program of 1983 and 1984 
achieved its goal of shifting construction activity from the public 
to the private sector. Nonetheless, the state continued to play a 
significant role in construction. The government planned to build 
2,500 houses and service facilities for low-income families in Panama 



163 



Panama: A Country Study 

City. The construction sector benefited from liberal tax incentives, 
which included preferential interest rates on mortgages and exemp- 
tion from capital gains tax on sales of urban real estate through 
1988. In the immediate aftermath of the political turmoil of 
mid- 1987, the rate of construction lowered dramatically as credit 
available to the private sector declined. 

Energy 

Energy is generally considered a part of industry, to the extent 
that it is an intermediate input in the production process. In 
Panama, however, the largest shares of energy are sold to the con- 
sumer and to commerce. Therefore, a significant portion of energy 
used in Panama should be considered a part of the services sector; 
for the sake of this analysis, however, energy is placed under indus- 
try, following conventional practice. 

Panama's energy production has increased substantially, from 
an average annual growth rate of 6.9 percent between 1965 and 
1980 to 11.1 percent between 1980 and 1985. The expansion of 
hydroelectric generating capability has been responsible for most 
of the growth. Per capita energy consumption has increased, from 
576 kilograms of oil equivalent in 1965 to 634 kilograms in 1985. 
This figure is higher than that of Nicaragua (259 kilograms) and 
Costa Rica (534 kilograms) but lower than that of Colombia 
(755 kilograms) and Mexico (1,290 kilograms). 

Panama depended on petroleum for 80 percent of its domestic 
energy needs in the late 1980s. Petroleum exploration has been 
underway since 1920, but without success; as a result, the country 
is dependent on imported petroleum. Saudi Arabia and Venezuela 
were the primary suppliers until 1981 , when Mexico replaced Saudi 
Arabia and joined Venezuela in the San Jose Agreement of 1980, 
under which the two countries supply oil to Caribbean Basin coun- 
tries on concessionary terms. Panama nearly halved its imports of 
oil between 1977 (20.5 million barrels) and 1983 (11.8 million bar- 
rels) in response to rising oil prices. Oil imports have declined as 
a share of the total value of imports, from 33 percent in 1977 to 
19 percent in 1985; in the latter year, the value of oil imports was 
US$19.2 million. 

The country's only oil refinery, near Colon, has a capacity of 
100,000 barrels per day. Since 1976 it has been operating far below 
capacity, because greater use has been made of hydroelectricity. 
Refinery products supplied the domestic fuel for thermal power 
plants, most of the transportation system, and other minor uses. 
In 1977 about 64 percent of the imported crude was reexported 
after refining, mostly to ships' bunkers; by 1983 that figure had 



164 



The Economy 



fallen to 35 percent. The government has approved the construc- 
tion of a second refinery, also near Colon, with a capacity of 75,000 
barrels per day. 

Hydroelectricity accounted for 10 percent of energy consump- 
tion and was the country's main domestic energy resource in the 
late 1980s. Panama has been substituting hydroelectric power gen- 
eration for petroleum-based thermal generation since the late 1970s. 
By 1980 some 30 sites had been identified on the country's numer- 
ous rivers, which, if developed, could generate 1,900 megawatts 
of power. The capacity for generating electricity was 300 megawatts 
in 1979; in 1984 it had increased to 980 megawatts, of which 650 
megawatts was hydroelectric and 330 megawatts was thermal. The 
increase was due in large measure to the Edwin Fabrega Dam, on 
the Rio Chiriquf, which began operation in 1984 with a generat- 
ing capacity of 300 megawatts. 

In 1985 the Institute of Hydraulic Resources and Electrification, 
responsible for power generation and distribution, initiated a five- 
year program to expand Panama's electrical generating capacity. 
At the time, there were 275,429 electricity consumers. A major 
goal of the program was to increase the distribution of electricity 
to an additional 12,000 people in rural areas. 

Other energy sources, such as bagasse, charcoal, and wood, 
accounted for the remainder of energy demand. Firewood supplied 
half of the country's energy requirements as late as the 1950s but 
declined rapidly thereafter, partly because of the deforestation it 
engendered. Bagasse was used as fuel at sugar mills. Coal reserves 
were discovered in the Bocas del Toro region in the 1970s, near 
the border with Costa Rica. If commercially exploitable, the coal 
in the region could be used for generating electricity. In August 
1985, the government announced plans to explore the reserves, 
with funding from the United States Agency for International 
Development and the United States Geological Survey. 

Foreign Economic Relations 

In the 1980s, Panama has struggled to adjust to the constraints 
imposed on its economy by a high external debt. To compensate 
for a deficit in the capital account, its current account has registered 
a surplus since 1983, because the services sector has maintained 
a surplus. Debt has remained high in per capita terms, but the actual 
debt burden has fallen. 

Trade 

The value of Panama's merchandise exports has always lagged 
behind imports. The level of imports relative to the size of the 



165 



Panama: A Country Study 

economy has remained large. Panama's consumption standards 
have been high for a developing country. In the early 1900s, nearly 
everything consumed in the metropolitan areas was imported 
because little agricultural surplus and virtually no manufacturing 
existed. By the mid-1980s, the country was largely self-sufficient 
in foods except for wheat, temperate-zone fruits and vegetables, 
and oils and fats. Domestic manufacturing provided a growing share 
of consumer goods, but the country still imported a wide range 
of commodities. 

With the decline of commodity prices on world markets in the 
1980s, the terms of trade (see Glossary) have steadily moved against 
Panama. Based on a terms of trade index of 100 in 1980, Pana- 
ma's index stood at 82 in 1985, meaning that it had to export con- 
siderably more in order to import the same value of goods it had 
previously imported. 

Panama controlled trade by issuing import and export licenses. 
Since 1983 tariffs have gradually replaced quantitative restrictions 
on imports. Taxes were levied on some imports, and incentives 
were given to nontraditional exports through tax credit certificates. 

In 1985 merchandise exports totalled US$414.50 million (exclud- 
ing reexports from the CFZ), down from US$526. 10 million in 1980 
(see table 16, Appendix A). Refined petroleum topped the list of 
export items, at US$100.60 million, but its net contribution to the 
trade balance was much smaller, given that Panama's crude oil is 
imported. Bananas, traditionally the largest export item, accounted 
for US$78.1 million in exports, followed by shrimp (US$53.4 mil- 
lion), manufactured goods (US$45 million), sugar (US$33.3 mil- 
lion), coffee (US$15.6 million), and clothing (US$11.5 million). 

About 75 percent of Panama's exports went to industrial coun- 
tries; Latin America received the other 25 percent. The United 
States was by far the largest single market, and in 1985 received 
60.5 percent of Panama's exports. Most of the remaining exports 
went to Costa Rica (7.5 percent), the Federal Republic of Germany 
(West Germany) (5.5 percent), Belgium (4.9 percent), and Italy 
(4.5 percent). The CBI was expected to increase Panama's exports 
to the United States. The CBI seeks to provide long-term trade, 
aid, and investment incentives to promote the economic revitaliza- 
tion of the Caribbean Basin. The most significant incentive is 
twelve-year, duty-free access of most goods to the United States 
market. Some omitted goods were footwear, textiles, leather and 
general apparel, canned tuna, petroleum and petroleum products, 
rubber and plastic gloves, luggage, and handbags. In addition, spe- 
cial rules limited the eligibility of sugar for duty-free treatment. 
Twenty countries, including Panama, were granted this access in 



166 



The Economy 



January 1984. In 1987 judging the long-term CBI benefits for 
Panama was premature. Critics charged that few new trade benefits 
would accrue from the CBI beyond those under the Generalized 
System of Preferences, which already accommodated 87 percent 
of Caribbean Basin exports to the United States. In the initial years 
of CBI implementation, the share of Panama's exports going to 
the United States remained unchanged. 

In 1985 Panama's merchandise imports amounted to US$1.34 
billion, or about 30 percent of GDP. In that year, manufactured 
goods were the largest import item (US$348.6 million), followed 
by crude oil (US$271.8 million), machinery and transport equip- 
ment (US$266.7 million), chemicals (US$158.0 million), and food 
products (US$142.6 million). Crude oil has traditionally been the 
largest import item, but in the 1980s its share of imports fell as 
petroleum prices declined and hydroelectric energy capacity 
increased. 

About one-third of Panama's imports came from the United 
States, another third from other industrial countries, and one-third 
from Latin America. In 1985 Panama's imports came from the 
United States (30.8 percent), Japan (8.9 percent), Mexico (8.2 per- 
cent), Venezuela (6.8 percent), and Ecuador (7.2 percent). Mexico 
and Venezuela supplied 70 percent of Panama's crude oil under 
the San Jose Agreement. 

Balance of Payments 

Because of its domestic use of the United States dollar, Panama 
had no short-term transfer problem and no foreign exchange con- 
straint. Capital flows and changes in the banking system's foreign 
assets were less dependent on the current account than was the case 
in other countries; these items responded mostly to the government's 
fiscal situation and to conditions affecting international banking. 

Panama's balance of payments has always been characterized 
by a large negative imbalance in its merchandise trade. In the 1970s, 
this imbalance grew almost uninterruptedly, to a large degree 
because of rising international prices for crude oil. In the 1980s, 
the merchandise trade balance continued to be negative; in 1985 
merchandise imports exceeded exports by US$904 million (see 
table 17, Appendix A). 

Panama's current account balance has been negative since the 
1970s because of large deficits in merchandise trade. In 1982 the 
current account balance registered a negative US$405.4 million, 
and the merchandise trade deficit was US$973.8 million. Since 
1983, Panama has had to adjust to its heavy external obligations, 
and the current account, though still negative, improved to a 



167 



Panama: A Country Study 

negative US$172.6 million in 1985. The current account has bene- 
fited from the large surpluses in services (US$1 .02 billion in 1985), 
which have nearly compensated for the deficits in merchandise 
trade. Transportation contributed the largest share to the services 
surplus — US$384 million in 1985. Other sources of services income 
included official transactions in the canal area, banking, insurance, 
and shipping. One of the largest drains on the current account was 
interest payments on the foreign debt. 

In 1985 Panama experienced a net capital inflow of US$32.2 
million and negative errors and omissions of US$136 million. The 
foreign reserves in the banking system declined by US$134.7 mil- 
lion. Direct foreign investment in Panama fluctuated in the early 
1980s; in 1985 it totalled US$68 million. Panama was open to for- 
eign investment, although it restricted activities in retailing, broad- 
casting, and mining. 

External Debt 

One of the major legacies of the Torrijos government was a large 
external debt. In the 1970s, the government relied increasingly on 
loans, essentially from abroad, to finance capital investments. The 
external public debt increased from US$150 million at the begin- 
ning of 1970 to US$774 million at the end of 1975. External fac- 
tors, such as the rise in oil prices, were partly to blame for the larger 
debt. By the end of 1978, Panama's external debt was nearly 
US$1 .9 billion, about 80 percent of GDP — one of the highest ratios 
in the world. 

In 1985 the external debt reached US$3.6 billion, or 73.5 per- 
cent of GDP, which on a per capita basis (US$1,636) was one of 
the largest in the world (see table 18, Appendix A). Most of the 
debt (US$3.27 billion) was long-term in its maturity structure; 
US$2.13 billion was owed to private creditors and US$1.14 bil- 
lion to official creditors (US$741 million to multilateral agencies 
and US$403 million to bilateral sources). 

Despite the high level of debt, the debt burden, as measured by 
the ratio of total interest to GDP, fell from 8.0 percent in 1982 
to 6.6 percent in 1985. Several factors helped Panama lower its 
debt burden. These included the drop in world oil prices and the 
decline in the average interest rate from a high of 11.4 percent in 
1982 to 8.5 percent in 1985. In 1983 the government implemented 
an economic adjustment program, which, from 1982 to 1985, 
slowed the annual rate of foreign debt accumulation from 16.4 per- 
cent to 6.7 percent and cut the private creditors' share of long- 
term debt from 72 percent to 65 percent. 



168 



The Economy 



Panama has rescheduled its loans from international bank credi- 
tors in 1983, 1985, and 1987. In September 1985, the Paris Club 
(a financial consortium of Western financiers and governments) 
also agreed to restructure US$19 million in principal repayments. 
An estimated US$1.2 billion was due between 1987 and 1990. 
Although the debt was still high in per capita terms, the lowered 
debt burden enhanced the country's chances of successfully 
rescheduling its loans. 

* * * 

The World Bank's Panama: Structural Change and Growth Prospects 
is an in-depth analysis of Panama's economy, with an emphasis 
on policy formulation. For comparative studies, see John Weeks 's 
The Economies of Central America and issues of the Economist Intelli- 
gence Unit's Country Profile: Nicaragua, Costa Rica, and Panama. For 
annual updates of economic activity in Panama, see the Inter- 
American Development Bank's Economic and Social Progress in Latin 
America, the International Monetary Fund's Balance of Payments Statis- 
tics Yearbooks, and the World Bank's World Development Reports . (For 
further information and complete citations, see Bibliography.) 



169 



Chapter 4. Government and Politics 



Cuna Indian mola design of a winged figure 



IN LATE 1987, PANAMA'S political system was unable to 
respond to the problems confronting the nation. Protests over the 
role in the government played by the Panama Defense Forces 
(Fuerzas de Defensa de Panama — FDP) and their commander, 
General Manuel Antonio Noriega Moreno, had produced economic 
disruption and the appearance of political instability and had con- 
tributed to serious strains in relations with the United States. With 
no immediate resolution of the conflict likely, Panama appeared 
to be in its most severe political crisis since the 1968 coup, which 
had made the military the dominant political force in the nation. 

The October 1968 coup marked the third time that the military 
had ousted Arnulfo Arias Madrid from the presidency of Panama. 
It differed from previous coups, however, in that it installed a mili- 
tary regime that promoted a mixture of populist and nationalist 
policies, while at the same time assiduously courting international 
business. Led, until his death in 1981, by the charismatic General 
Omar Torrijos Herrera, the military used limited but effective 
repression to prevent civilian opposition groups from returning to 
power. Torrijos also created the Democratic Revolutionary Party 
(Partido Revolucionario Democratico — PRD), which became the 
official ruling party. 

The death of Torrijos, in an airplane crash on July 31, 1981, 
precipitated a prolonged struggle for power. In a little more than 
four years Panama had three FDP commanders and five civilian 
presidents. At the same time, both domestic and international pres- 
sures for a return to civilian rule increased steadily. Constitutional 
revisions in 1983, followed by presidential and legislative elections 
in 1984, were supposed to promote this process. The elections, 
however, were tainted by widespread allegations of fraud. Whatever 
credibility the newly installed civilian government had was under- 
mined further in September 1985, when President Nicolas Ardito 
Barletta Vallarino was forced out of office by General Noriega and 
the FDP. In the following two years, political tensions continued 
to increase, fueled by negative publicity abroad, by the murder 
of a prominent opposition political figure, Dr. Hugo Spadafora, 
by the open break between General Noriega and his most promi- 
nent rival within the military, Colonel Roberto Diaz Herrera, and 
by serious economic problems, notably a major international debt 
burden and major capital flight. 



173 



Panama: A Country Study 

The era of military rule had not been without its positive accom- 
plishments. Most notable was the successful negotiation of the 1977 
Panama Canal treaties with the United States. These treaties, which 
went into effect on October 1, 1979, ended the separate territorial 
status of the Panama Canal Zone and provided for Panama's full 
control over all canal operations at the end of the century. Under 
the military, Panama also had emerged as a major international 
banking center, had become a more prominent actor in world 
affairs, exemplified by its position as one of the original "Core 
Four" mediators (along with Mexico, Venezuela, and Colombia) 
in the Contadora negotiating process seeking to mediate the con- 
flicts in Central America, and had implemented numerous social 
reforms, raising the standard of living for many of its citizens. In 
late 1987, however, many of these accomplishments appeared 
jeopardized by the continuing crisis in civil-military relations and 
the inability of the Panamanian government to maintain a peace- 
ful evolution toward a more open, democratic political system. 

The Constitutional Framework 

In 1987 Panama was governed under the Constitution of 1972 
as amended by the Reform Acts of 1978 and the Constitutional 
Act of 1983. This was Panama's fourth constitution, previous con- 
stitutions having been adopted in 1904, 1941, and 1946. The differ- 
ences among these constitutions have been matters of emphasis and 
have reflected the political circumstances existing at the time of 
their formulation. 

The 1904 constitution, in Article 136, gave the United States 
the right to "intervene in any part of Panama, to reestablish pub- 
lic peace and constitutional order." Reflecting provisions of the 
Hay-Bunau-Varilla Treaty, this confirmed Panama's status as a 
de facto protectorate of the United States (see The United States 
Protectorate, ch. 1). Article 136, along with other provisions of the 
Hay-Bunau-Varilla Treaty, such as that giving the United States 
the right to add additional territory to the Canal Zone whenever 
it believed this was necessary for defensive purposes, rankled 
Panamanian nationalists for more than three decades. 

In 1939 the United States abrogated its right of intervention in 
internal Panamanian affairs with the ratification of the Hull-Alfaro 
Treaty. The 1941 constitution, enacted during Arnulfo Arias 's first, 
brief presidential term, not only ended Panama's constitutionally 
mandated protectorate status, but also reflected the president's 
peculiar political views (see The War Years, ch. 1). Power was con- 
centrated in the hands of the president, whose term, along with 
that of members of the legislature, was extended from four to six 



174 



Government and Politics 



years. Citizenship requirements were added that discriminated 
against the nation's English-speaking black community and other 
non-Hispanic minorities (see Ethnic Groups, ch. 2). 

In October 1941, President Arias was deposed by the National 
Police (the predecessor of the National Guard and FDP), and the 
presidency was assumed by Ricardo Adolfo de la Guardia. In 1946 
President de la Guardia promulgated a new constitution, which 
was basically a return to the 1904 document without the offensive 
Article 136. The 1946 constitution lasted for twenty-six years. Fol- 
lowing the 1968 military coup, eleven constitutional guarantees, 
including freedom of speech, press, and travel, were suspended for 
several months, and some were not restored fully until after the 
adoption of the 1972 Constitution. The 1972 Constitution was 
promulgated by General Torrijos and reflected the dominance of 
the political system by the general and the military (see The Govern- 
ment of Torrijos and the National Guard, ch. 1). 

Article 277 of the 1972 Constitution designated Torrijos as the 
"Maximum Leader of the Panamanian Revolution," granting him 
extraordinary powers for a period of six years, including the power 
to appoint most government officials and to direct foreign relations. 
On October 11, 1978, this and other temporary provisions of the 
1972 Constitution expired, and a series of amendments, ratified 
by the Torrijos-controlled National Assembly of Municipal Repre- 
sentatives, became law. These amendments called for a gradual 
return to democratic political processes between 1978 and 1984 and 
were designed, in part, to assuage United States concerns over the 
undemocratic nature of the Panamanian political system (see Tor- 
rijos Government Undertakes "Democratization," ch. 1). 

In 1983 a commission representing various political parties was 
created to amend further the Constitution in preparation for the 1984 
elections. The sixteen-member commission changed nearly half of 
the Constitution's articles, producing several significant alterations. 
Article 2 had given the military a special political role, but all men- 
tion of this was omitted in the revised draft. The legislature was 
also revamped. The National Legislative Council was eliminated, 
and the unwieldy, government-controlled National Assembly of 
Municipal Representatives, which had 505 representatives, one from 
each corregimiento (municipal subdistrict), became the Legislative 
Assembly, with 67 members apportioned on the basis of popula- 
tion and directly elected. The independence of the judiciary and the 
Electoral Tribunal were strengthened, the term of the president was 
reduced to five years, and two vice presidents were to be elected. 
Guarantees of civil liberties were strengthened, and official support 
for candidates in elections was, at least in theory, severely restricted. 



175 



Panama: A Country Study 

The amended Constitution contains 312 articles. Power emanates 
from the people and is exercised by the three branches of govern- 
ment, each of which is "limited and separate," but all of which, 
in theory, work together in "harmonious collaboration." The 
national territory is defined as "the land area, the territorial sea, 
the submarine continental shelf, the subsoil, and air space between 
Costa Rica and Colombia." Any ceding, leasing, or other aliena- 
tion of this territory to any other state is expressly forbidden. Spanish 
is the country's national language. 

Citizenship may be acquired by birth or naturalization. Arti- 
cles 17 through 50 guarantee a broad range of individual rights, 
including property rights, but Article 51 gives the president power 
to suspend many of these by declaring a "state of emergency." 
Articles 52 through 124 establish the role of the state in protecting 
the family, regulating labor conditions, promoting education and 
culture, providing assistance for health and other areas of social 
security, promoting agriculture, and protecting the environment. 

After the elaboration of the composition, powers, and duties of 
the various organs of the governmental system, the Constitution 
ends with descriptions of the state's responsibilities with respect 
to the national economy, public administration, and national secu- 
rity. Engaging in economic activities, for example, is primarily the 
function of private individuals, but the state will "orient, direct, 
regulate, replace, or create according to social necessities . . . with 
the object of increasing national wealth and to ensure its benefits 
for the largest possible number of the nation's inhabitants." Arti- 
cle 308 provides for amending the Constitution, either through 
approval of amendments without modification by an absolute 
majority of two successive elected assemblies or approval with modi- 
fications by two assemblies and subsequent ratification of the modi- 
fied text by a national referendum. 

Panama's successive constitutions have been respected in vary- 
ing degrees by the republic's governments. Since the 1968 coup, 
opponents of various governments have accused them of violating 
the spirit and, at times, the letter of the Constitution and of invok- 
ing the state of emergency provisions for purely political purposes. 
Creating public confidence in the rule of law established by the 
Constitution presented the government with one of its major 
challenges in the late 1980s. 

The Governmental System 
The Executive 

As is the case throughout most of Latin America, constitutional 



176 



Government and Politics 



power in Panama — although distributed among three branches of 
government — is concentrated in the executive branch. The 1978 
and 1983 amendments to the Constitution decreased the powers 
of the executive and increased those of the legislature, but the 
executive branch of government remains the dominant power in 
the governmental system as defined by the Constitution. 

The executive organ is headed by the president and two vice 
presidents. They, together with the twelve ministers of state, make 
up the Cabinet Council, which is given several important powers, 
including decreeing a state of emergency and suspending constitu- 
tional guarantees, nominating members of the Supreme Court, and 
overseeing national finances, including the national debt. These 
officials, together with the FDP commander, attorney general, 
solicitor general, president of the Legislative Assembly, directors 
general of various autonomous and semiautonomous state agen- 
cies, and president of the provincial councils, make up the General 
Council of State, which has purely advisory functions. 

The president and the two vice presidents, who must be native- 
born Panamanians and at least thirty-five years of age, are elected 
to five-year terms by direct popular vote. Candidates may not be 
related directly to the incumbent president or have served as presi- 
dent or vice president during the two preceding terms. Should the 
president resign or be otherwise removed from office, as was the 
case with President Ardito Barletta in 1985, he is replaced by the 
first vice president, and there is no provision for filling the vacancy 
thus created in the vice presidential ranks. 

Under the Constitution, the president has the exclusive right to 
appoint or remove ministers of state, maintain public order, appoint 
one of the three members of the Electoral Tribunal, conduct foreign 
relations, and veto laws passed by the Legislative Assembly. In 
theory a veto may be overridden by a two-thirds majority vote of 
the assembly. In addition, many powers are exercised by the presi- 
dent jointly with the appropriate individual cabinet member, includ- 
ing appointing the FDP high command, appointing and removing 
provincial governors, preparing the budget, negotiating contracts 
for public works, appointing officials to the various autonomous 
and semiautonomous state agencies, and granting pardons. The 
president's power to appoint and remove cabinet members would 
seem to make the requirement for operating with the consent of 
the cabinet largely a formality, but the FDP and its allies in the 
PRD frequently have dictated the composition of the cabinet, using 
this as a means to exercise control over the president. 

The two vice presidencies are relatively powerless positions, but 
since three vice presidents have succeeded to the presidency during 



177 



Panama: A Country Study 

the 1980s, the posts are not insignificant. The first vice president 
acts as chief executive in the absence of the president, and both 
have votes in the Cabinet Council. 

The ministers of state include the ministers of agriculture, com- 
merce and industries, education, finance, foreign relations, govern- 
ment and justice, health, housing, labor and social welfare, planning 
and economic policy, the presidency, and public works. There is 
no ministry directly representing or having jurisdiction over the FDP 
(see Missions and Organization of the Defense Forces, ch. 5). Never- 
theless, the minister of government and justice has nominal authority 
over the FDP's police functions, along with control over prisons, 
civil aviation, and internal communications, making this one of the 
most powerful cabinet posts. This ministry also supervises local 
government in the Comarca de San Bias as well as in the nine 
provinces, thus exerting central government control over local affairs. 

The Legislature 

The 1983 amendments to Panama's Constitution created a new 
legislative organ, the Legislative Assembly, a unicameral body with 
sixty-seven members, each of whom has an alternate. Members 
and alternates are elected for five-year terms that run concurrently 
with those of the president and vice presidents. To be eligible for 
election, an individual must be at least twenty-one years of age 
and be a Panamanian citizen either by birth or by naturalization 
with fifteen years of residence in Panama subsequent to naturaliza- 
tion. The legislature holds two four-month sessions each year and 
may also be called into special session by the president. 

In theory, the assembly has extensive powers. It can create, 
modify, or repeal laws, ratify treaties, declare war, decree amnesty 
for political offenses, establish the national currency, raise taxes, 
ratify government contracts, approve the national budget, and 
impeach members of the executive or judicial branches. There are, 
however, significant limitations on these powers, both in law and 
in practice. Members are nominated for election by parties, and 
the parties may revoke their status as legislators. This gives the 
official government party, the PRD, and its allies the power to 
ensure conformity with government policy and prevent defections 
from its ranks. Moreover, there are no provisions for legislative 
control over the military. The legislature also is severely limited 
in its ability to control the budget. Under Article 268 of the Con- 
stitution, the assembly is prohibited from adding to the budget sub- 
mitted by the executive without the approval of the Cabinet Council. 
It may not repeal taxes included in the budget unless, at the same 
time, it creates new taxes to make up any revenue lost. 



178 



Legislative Palace, Panama City 
Courtesy Embassy of Panama 



Differences in practice are also important. Since its creation, the 
assembly has never rejected an executive nomination for a govern- 
ment post, refused to ratify a treaty, or turned down an executive 
request for grants of extraordinary powers or for the establishment 
or prolongation of a state of emergency. The opposition, which 
held twenty-two seats in late 1987, has used the assembly as a forum 
to attack government policies and to criticize the role played in the 
administration by the FDP, but it has been unable to block or even 
seriously delay any government project. Assembly debates normally 
are broadcast live, but during the disturbances of June 1987, 
speeches by opposition members frequently were not carried on 
the radio. 

The lack of institutional independence also has inhibited the 
development of local or special interest representation within the 
assembly. The parties' tight control over the selection of candi- 
dates and their subsequent performance as legislators works against 
such representation, as does the dominance of the executive branch. 
This control is further strengthened by the fact that elections are 
held only every five years and occur in conjunction with presiden- 
tial elections. 

Should political conditions change in Panama and the dominant 
role of the military be significantly reduced, the Legislative 
Assembly has the potential to emerge as a significant participant 



179 



Panama: A Country Study 



in the national political process, but its powers would still be less 
extensive than those exercised by the executive branch. Under the 
circumstances existing in late 1987, it lacked both the power and 
the will to block, or even significantly modify, government projects 
and served largely as a public debating forum for government sup- 
porters and opponents. 

The Judiciary 

The Constitution establishes the Supreme Court as the highest 
judicial body in the land. Judges must be Panamanian by birth, 
be at least thirty-five years of age, hold a university degree in law, 
and have practiced or taught law for at least ten years. The num- 
ber of members of the court is not fixed by the Constitution. In 
late 1987, there were nine justices, divided into three chambers, 
for civil, penal, and administrative cases, with three justices in each 
chamber. Judges (and their alternates) are nominated by the 
Cabinet Council and subject to confirmation by the Legislative 
Assembly. They serve for a term of ten years. Article 200 of the 
Constitution provides for the replacement of two judges every two 
years. The court also selects its own president every two years. 

The Constitution defines the Supreme Court as the guardian 
of "the integrity of the Constitution." In consultation with the 
attorney general, it has the power to determine the constitutional- 
ity of all laws, decrees, agreements , and other governmental acts. 
The court also has jurisdiction over cases involving actions or failure 
to act by public officials at all levels. There are no appeals from 
decisions by the court. 

Other legislation defines the system of lower courts. The nation 
is divided into three judicial districts: the first encompasses the 
provinces of Panama, Colon, and Darien; the second, Veraguas, 
Los Santos, Herrera, and Code; the third, Bocas del Toro and 
Chiriquf (see fig. 1). Directly under the Supreme Court are four 
superior tribunals, two for the first judicial district and one each 
for the second and third districts. Within each province there are 
two circuit courts, one for civil and one for criminal cases. The 
lowest regular courts are the municipal courts located in each of 
the nation's sixty-five municipal subdivisions. In the tribunals, the 
judges are nominated by the Supreme Court, while lower judges 
are appointed by the courts immediately above them. 

The Constitution also creates a Public Ministry, headed by the 
attorney general, who is assisted by the solicitor general, the dis- 
trict and municipal attorneys, and other officials designated by law. 
The attorney general and the solicitor general are appointed in the 
same way as Supreme Court justices, but serve for no fixed term. 



180 



Government and Politics 



Lower-ranking officials are appointed by those immediately above 
them. The functions of the Public Ministry include supervising the 
conduct of public officials, serving as legal advisers to other govern- 
ment officials, prosecuting violations of the Constitution and other 
laws, and arraigning before the Supreme Court officials over whom 
the Court "has jurisdiction. " This provision pointedly excludes 
members of the FDP. 

Several constitutional provisions are designed to protect the inde- 
pendence of the judiciary. These include articles that declare that 
"magistrates and judges are independent in the exercise of their 
functions and are subject only to the Constitution and the law"; 
that "positions in the Judicial Organ are incompatible with any 
participation in politics other than voting"; that judges cannot be 
detained or arrested except with a "written order by the judicial 
authority competent to judge them"; that the Supreme Court and 
the attorney general control the preparation of the budget for the 
judicial organ; and that judges "cannot be removed, suspended, 
or transferred from the exercise of their functions except in cases 
and according to the procedures prescribed by law." 

The major defect in the judicial system lies in the manner in 
which appointments are made to the judiciary. Appointments of 
judges and of the attorney general are subject to the approval of 
the Legislative Assembly, but that body has functioned as a rub- 
ber stamp for candidates selected by the executive. Lower-level 
appointments, made by superiors within the judicial organ, are not 
subject to assembly approval. In addition, the first two Supreme 
Court justices appointed after the 1984 elections were both former 
attorneys general, closely associated with the government and even 
involved in some of its most controversial actions, such as the inves- 
tigation of the murder of opposition leader Spadafora. As a result, 
the opposition has regularly denounced the judicial system for being 
a political organ controlled by the FDP and the PRD. Numerous 
external observers, including the Inter-American Commission on 
Human Rights of the Organization of American States (OAS), the 
United States Department of State, and various human rights 
organizations, also have criticized the lack of independence of the 
Panamanian judiciary and of the Public Ministry (see Adminis- 
tration of Justice, ch. 5). 

State Agencies and the Regulation of Public Employees 

In addition to the three branches of government, the state appara- 
tus includes numerous independent or quasi-independent agen- 
cies and institutions that function in a variety of ways. The most 
important of these is the three-member Electoral Tribunal. The 



181 



Panama: A Country Study 



Constitution provides that the executive, legislative, and judicial 
branches of government will each select one of the members of this 
body. The tribunal is charged with conducting elections, tabulat- 
ing and certifying their results, regulating, applying, and inter- 
preting electoral laws, and passing judgment on all allegations of 
violations of these laws. The tribunal also conducts the registra- 
tion of voters and the certification of registered political parties and 
has jurisdiction over legal disputes involving internal party elec- 
tions. Its decisions are final and may be appealed only in cases where 
the tribunal is charged with having violated constitutional provi- 
sions. Although the tribunal may pass judgment on charges of vio- 
lations of electoral laws and procedures, the prosecution of those 
charged with such violations is in the hands of the electoral prose- 
cutor, an individual independent of the tribunal who is appointed 
by the president for a single term of ten years. 

While autonomous in theory, in practice the Electoral Tribunal 
has consistently followed the dictates of the government and the 
FDP. This was exemplified most clearly in the decision to certify 
the results of the 1984 elections, dismissing all charges of fraud and 
other irregularities. The position of the electoral prosecutor is even 
more subject to administrative control. The opposition parties con- 
sistently have attacked the lack of independence of the tribunal and 
the prosecutor and have refused to participate in tribunal-controlled 
projects aimed at reforming the electoral code in preparation for 
the 1989 elections. President Eric Arturo Delvalle Henriquez urged 
broad participation in such efforts and promised to appoint a mem- 
ber of the opposition to the tribunal, but such actions did not satisfy 
the opposition. The tribunal, itself, has declared that it is not pro- 
vided adequate funds for the tasks with which it is charged. 

The Constitution also provides for an independent comptroller 
general who serves for a term equal to that of the president and 
who may be removed only by the Supreme Court. The comptroller 
is charged with overseeing government revenues and expenditures 
and investigating the operations of government bodies. -.Although 
independent in theory, in practice holders of this office have vir- 
tually never challenged government policy. 

Quasi-independent governmental commissions and agencies 
include the National Bank of Panama: the Institute of Hydraulic 
Resources and Electrification, which is in charge of the nation's 
electrical utility; the Colon Free Zone: and the University of 
Panama. Other state agencies and autonomous and semiautono- 
mous agencies function m various capacities within the social and 
economic svstem of the nation. 



182 



Government and Politics 



Public employees, defined by the Constitution as "persons 
appointed temporarily or permanently to positions in the Execu- 
tive, Legislative, or Judicial Organs, the municipalities, the autono- 
mous and semiautonomous agencies, and in general those who 
collect remuneration from the State," are all to be Panamanian 
citizens and are governed by a merit system. The Constitution pro- 
hibits discrimination in public employment on the basis of race, 
sex, religion, or political affiliation. Tenure and promotion, accord- 
ing to Article 295, are to "depend on their competence, loyalty, 
and morality in service." Several career patterns relating to those 
in public service are outlined and standardized by law. The Con- 
stitution also identifies numerous individuals, including high politi- 
cal appointees, the directors and subdirectors of autonomous and 
semiautonomous agencies, secretarial personnel, and temporary 
employees, who are exempted from these regulations. In addition, 
the Constitution stipulates that a number of high government offi- 
cials, including the president and vice presidents, Supreme Court 
justices, and senior military officials, must make a sworn declara- 
tion of their assets on taking and leaving office. In practice, these 
provisions often are ignored or circumvented. Public employment 
is characterized by favoritism, nepotism, and a tendency to pad 
payrolls with political supporters who do little if any actual work. 

Provincial and Municipal Government 

The nine provincial governments are little more than adminis- 
trative subdivisions of the central government. Article 249 of the 
Constitution states that "in each province there shall be a Gover- 
nor freely appointed and removed by the Executive who shall be 
the agent and representative of the President within his jurisdic- 
tion. ' ' In addition, each province has a body known as the Provin- 
cial Council, composed of district (corregimiento) representatives. The 
governor, mayors, and additional individuals "as determined by 
the law" also take part in each council, but without voting rights. 
The powers of these councils are largely advisory, and they lack 
actual legislative responsibility. The Comarca de San Bias, inhabited 
largely by Cuna Indians, has a distinct form of local government 
headed by caciques, or tribal leaders (see Indians, ch. 2). 

In contrast, the nation's sixty-five municipal governments are 
"autonomous political organizations." Although closely tied to the 
national government, municipal officials, under Article 232 of the 
Constitution, may not be removed from office by the national 
administration. In each municipality, mayors, the directors of 
municipal administration, and their substitutes (suplentes) are directly 
elected for five-year terms. There is, however, an additional 



183 



Panama: A Country Study 

constitutional provision that the Legislative Assembly may pass laws 
requiring that officials in some or all municipalities are to be 
appointed by the president rather than elected. In 1984 municipal 
officials were elected in a separate election, held on short notice 
after the election of the president and the legislature. Opposition 
parties protested the timing and conditions of these elections, but 
participated. The great majority of offices, including those in the 
capital, were won by pro-government candidates, but opposition 
parties did gain control of a few municipalities, notably in David, 
capital of Chiriqm Province. 

Municipalities are divided further into districts, from each of 
which a representative is elected to the Municipal Council. Should 
a town have fewer than five districts, five council members are 
chosen in at-large elections. These districts, in turn, have their own 
form of local government, headed by a corregidor, and including a 
junta communal made up of the corregidor, the district's representa- 
tive to the Municipal Council, and five other residents "selected 
in the form determined by law." 

The major concern of municipal and district officials is the col- 
lection and expenditure of local revenues. These local politicians 
have some control over public works, business licenses, and other 
forms of local regulations and improvements, but many functions 
that fall within the jurisdiction of local governments in other nations, 
such as educational, judicial, and police administration, are left 
exclusively to the jurisdiction of the central government. Local 
administrations do contribute to the cost of schools, but the amount 
of their contribution is determined at the national level, based on 
their population and their state of economic and social development. 

Nationalism, Populism, and Militarism: 
The Legacy of Omar Torrijos 

From 1968 until his death in an airplane crash in 1981 , General 
Torrijos dominated the Panamanian political scene. His influence, 
greater than that of any individual in the nation's history, did not 
end with his death. Since 1981 both military and civilian leaders 
have sought to wrap themselves in the mantle of Torrijismo, claim- 
ing to be the true heirs of the general's political and social heritage. 
As of the late 1980s, none had been particularly successful in this 
effort. 

Before 1968 Panama's politics had been characterized by per- 
sonalism (personalismo), the tendency to give one's political loyal- 
ties to an individual, rather than to a party or particular ideological 
platform (see The Oligarchy under Fire, ch. 1). The dominant force 
had been the traditional elite families, known as the rabiblancos 



184 



Political rally with poster of Torrijos 
Courtesy National Archives 

(white tails), concentrated in Panama City. They manipulated 
nationalist sentiment, largely directed against United States con- 
trol over the Canal Zone, the National Guard, and various politi- 
cal parties in order to maintain their control. The most dominant 
individual in the pre- 1968 period was Arnulfo Arias, a charismatic, 
right-wing nationalist who was both feared and hated by the 
National Guard's officers. His overthrow in 1968 marked the third 
time that he had been ousted from the presidency, never having 
been allowed to finish even half of the term for which he had been 
elected. 

It soon became apparent that the 1968 coup differed fundamen- 
tally from those that preceded it. Torrijos actively sought to add 
lower- and middle-class support to the power base provided by his 
control over the military, using a mixture of nationalism and 
populism to achieve this goal. He cultivated laborers, small farm- 
ers, students, and even the communists, organized in Panama as 
the People's Party (Partido del Pueblo— PdP). He excluded the 
traditional elites from political power, although he left their eco- 
nomic power base largely untouched. Political parties were banned, 
and the legislature was dissolved (until replaced in 1972 by the 
National Assembly of Municipal Representatives, 505 largely 
government-selected representatives of administrative subdistricts 
supposedly elected on a nonpartisan basis). Torrijos justified his 



185 



Panama: A Country Study 

policies as being required by the pressing social needs of the popu- 
lation and by the overriding need to maintain national unity in 
order to negotiate a treaty with the United States that would cede 
sovereignty over the Canal Zone and ultimately give control of the 
Panama Canal to Panama. 

In the early 1970s, the strength of the populist alliance forged by 
Torrijos was impressive. He had reduced the traditional antagonism 
between the National Guard and the students, purging disloyal ele- 
ments within both in the process. The loyalty of the middle classes 
was procured through increased public-sector employment. Major 
public housing projects, along with expanded health, education, and 
other social service programs, helped maintain support in urban 
areas. Labor leaders were cultivated through the adoption of a much 
more favorable labor code, and a constant emphasis on the necessity 
of gaining control over the canal undercut the nationalist appeal of 
Arnulfo Arias. By 1976, however, rising inflation, increased unem- 
ployment, and the continued failure to negotiate a canal treaty had 
begun to undermine the general's popularity. 

The 1977 signing of the Panama Canal treaties, giving Panama 
full control over the canal in the year 2000, actually added to the 
problems confronting Torrijos. There was considerable opposition 
in Panama to some provisions of the treaties, and it took all of the 
general's prestige to secure the needed two-thirds majority for ratifi- 
cation in an October 1977 national plebiscite. Resentment further 
increased when the government acceded to several amendments 
passed by the United States Senate after the plebiscite (see The 
1977 Treaties and Associated Agreements, ch. 1). At the same time, 
in order to facilitate United States ratification of the treaties, Tor- 
rijos found it necessary to promise to restore civilian rule and return 
the military to the barracks. 

The 1978 amendments to the Constitution were the first step 
in the process of restoring civilian rule. That same year, the govern- 
ment allowed exiled political opponents to return, permitted the 
re-emergence of political parties, and promised to hold legislative 
elections in 1980 and presidential elections in 1984. Only parties 
that could register 30,000 members, however, would gain official 
recognition. Torrijos and his supporters used the new system to 
create their own political party, the PRD, which tried to combine 
the old elements of the Torrijos coalition into a single political struc- 
ture. Torrijos also appointed a new civilian president, Aristides 
Royo, and announced that he was relinquishing the special pow- 
ers he had exercised since 1972. 

Opponents argued that the pace of democratization was too slow 
and called for immediate, direct election of both the president and 



186 



Government and Politics 



a representative legislature. Ultimately, however, most sought to 
achieve legal status for their parties. A major exception was Arnulfo 
Arias 's Panamenistas, who initially boycotted the entire process. 
In the 1980 elections for nineteen of the fifty-seven seats in the legis- 
lature, the principal parties to emerge were the PRD, with twelve 
seats, and the opposition National Liberal Party (Partido Liberal 
Nacional — PLN), with five seats, and Christian Democratic Party 
(Partido Democrato Cristiano — PDC), with one seat. 

Political Developments in the Post-Torrijos Era 

The death of General Torrijos in a July 1981 airplane crash 
represented a major break in the pattern of Panamanian politics 
(see The Post-Torrijos Era, ch. 1). The next several years saw con- 
siderable turmoil both in the National Guard and among the politi- 
cal leadership, as various individuals jockeyed to fill the void created 
by Torrijos' s untimely death. Command of the National Guard 
was initially assumed by Colonel Florencio Florez Aguilar, but in 
March 1982, a struggle for power among the officers resulted in 
his replacement by Colonel Ruben Dario Paredes, who promptly 
promoted himself to general and, four months later, forced Presi- 
dent Royo to resign. In December further changes in the National 
Guard's command structure saw the emergence of Colonel Noriega 
as chief of staff and the likely successor to Paredes. 

On April 24, 1983, nearly 88 percent of the voters in a national 
referendum approved further amendments to the Constitution 
designed to set the stage for the 1984 presidential and legislative 
elections. Much of the rest of the year was devoted to maneuver- 
ings by Paredes and other potential presidential candidates, seek- 
ing to gain support for their ambitions and to form coalitions with 
other political groups and parties, in order to further enhance their 
prospects. By September 13 parties had gained the 30,000 signa- 
tures necessary for official registration. These included the 
Panamenistas, as Arnulfo Arias reversed his longstanding boycott 
of the political process. Nominated by the PRD and several other 
parties, Paredes resigned from his post as the National Guard's 
commander to pursue his presidential ambitions. Nevertheless, after 
Noriega was promoted to general and took over command of the 
National Guard, he quickly moved to undercut Paredes, leading 
to a sudden announcement of Paredes 's withdrawal as a presiden- 
tial candidate in September. 

Paredes 's withdrawal led to considerable confusion in the politi- 
cal process. Ultimately, two major coalitions emerged and presented 
candidates for president. (Although the parties united behind their 



187 



Panama: A Country Study 

presidential candidates, they nevertheless ran separate slates for 
seats in the legislature.) 

The National Democratic Union (Union Nacional Democrat- 
ica- — UNADE) was formed by six parties: the PRD; the Labor and 
Agrarian Party (Partido Laborista Agrario — PALA), frequently 
referred to simply as the Labor Party; the PLN; the Republican 
Party (PR — Partido Republicano); the Panamehista Party (Partido 
Panamenista — PP), a small faction that broke away from the majority 
of Panamefiistas, who continued to follow Arnulfo Arias; and the 
Broad Popular Front (Frente Amplio Popular — FRAMPO). 
UNADE 's presidential candidate was Nicolas Ardito Barletta, an 
international banker with little political experience. PR leader Eric 
Arturo Delvalle and PLN veteran Roderick Esquivel received the 
vice presidential nominations. UNADE' s principal competition was 
the Democratic Opposition Alliance (Alianza Democratica de 
Oposicion — ADO), which encompassed three major parties: the 
majority of Panamenistas organized in the Authentic Panamenista 
Party (Partido Panamenista Autentico — PPA), the PDC, and the 
National Liberal Republican Movement (Movimiento Liberal 
Republicano Nacional — MOLIRENA). A number of smaller par- 
ties also joined the coalition. ADO's presidential candidate was 
eighty-three-year-old Arnulfo Arias. Carlos Francisco Rodriguez and 
Christian Democratic leader Ricardo Arias Calderon were its vice 
presidential candidates. 

Five minor candidates also entered the race. They included 
General Paredes, who reentered the field as the candidate of the 
Popular Nationalist Party (Partido Nacionalista Popular — PNP); 
Carlos Ivan Zuriiga of the Popular Action Party (Partido de Accion 
Popular — PAPO); and the candidates of three small, far-left parties. 

The campaign and election were marred by violence and repeated 
charges by Arnulfo Arias and other opposition candidates that the 
Guard was using force, fraud, and intimidation to promote Ardito 
Barletta' s candidacy. Official counting of the vote was delayed for 
several days and the Electoral Tribunal appeared divided, but ulti- 
mately the government certified Ardito Barletta as president, declar- 
ing that he had won with 300,748 votes to 299,035 for Arias. None 
of the minor candidates won more than 16,000 votes. All parties 
outside the major alliances plus the smallest members of the 
UNADE coalition (FRAMPO and the PP) lost their legal status 
by failing to receive 3 percent of the total vote. Supporters of Arnulfo 
Arias charged that Ardito Barletta' s victory was the result of mas- 
sive government fraud and organized several protest demonstra- 
tions, but to no avail. Charges of fraud also were launched against 
the winners of several legislative seats. In these races, official returns 



188 



Government and Politics 



gave a large majority to members of the government coalition; the 
PRD won thirty-four seats, the PPA fourteen, PALA seven, the 
PDC five, the PR and MOLIRENA three each, and the PLN one. 

Disturbances continued for weeks after the announcement of 
Ardito Barletta's victory, contributing to a decision to postpone 
scheduled municipal elections. The disturbances also aggravated 
an already deteriorating economic situation, fueled by a massive 
debt and a rising budget deficit. In November 1984, shortly after 
his inauguration, Ardito Barletta attempted to implement an 
austerity program and to reduce the budget deficit through increased 
taxes. These measures led to a wave of strikes and public demon- 
strations, and the president was forced to back off on some of his 
proposals. 

Conditions continued to deteriorate in 1985. Elements of the 
government coalition joined in protests against Ardito Barletta's 
economic policies, and pressures from the National Guard and the 
PRD forced the president to agree to changes in several key cabi- 
net posts. Both business and labor confederations withdrew from 
government- sponsored meetings to discuss the situation, and labor 
disturbances increased. In August Noriega publicly criticized the 
government. 

Rumors of a coup were spreading when, on September 14, 1985, 
the headless body of a prominent critic of Noriega, Dr. Hugo 
Spadafora, was found in Costa Rica. This discovery unleashed 
another round of protest demonstrations. Noriega and the National 
Guard denied any involvement in the murder, but they refused 
to allow an independent investigation. When Ardito Barletta seemed 
to indicate some willingness to do so, he was hurriedly recalled from 
a visit to the United Nations (UN) and, on September 28, forced 
to resign. Vice President Delvalle became the fifth president in less 
than four years. 

The ousting of Ardito Barletta failed to calm the situation. Pro- 
tests over Spadafora' s murder and over the economic situation con- 
tinued. In October the government was forced to close all schools 
for several days. Rising tensions also began to affect relations with 
the United States, which had opposed the ousting of Ardito Barletta, 
and even created problems within the major pro- government party, 
the PRD, which underwent a shake-up in its leadership. 

The new administration initially attempted to reverse the rising 
tide of discontent by returning to the populist policies of the Tor- 
rijos era. Prices of milk, rice, and petroleum were lowered, and 
President Delvalle announced that any agreement with the Inter- 
national Monetary Fund (IMF — see Glossary) would be based on 
negotiations with labor and with the private sector. Economic 



189 



Panama: A Country Study 

realities, however, soon forced the government to impose an auster- 
ity program remarkably similar to that advocated by Ardito Barletta 
and to introduce, over strong objections from the unions, sweep- 
ing reforms in the labor code, designed to make Panama more 
attractive for foreign and domestic investment (see Wage Policy 
and Labor Code, ch. 3). A national strike protesting the new poli- 
cies failed when Noriega and the FDP supported Delvalle. The new 
policies produced some economic improvement but did nothing 
to resolve mounting political problems. 

Panama's domestic problems were paralleled by growing criti- 
cism abroad, notably in the United States. In March 1986, the Sub- 
committee on Western Hemisphere Affairs of the United States 
Senate Committee on Foreign Relations began holding hearings 
on the situation in Panama, and the following month hearings also 
began in the House of Representatives. In June a series of articles 
by Seymour Hersh alleging involvement by Panamanian officials 
in narcotics trafficking, the murder of Spadafora, and the passing 
of sensitive intelligence to Cuba were published in the New York 
Times (see Involvement in Political and Economic Affairs, ch. 5). 
Both within and outside Panama, the increased criticism focused 
attention on the military and on General Noriega. Delvalle 's civilian 
government found it increasingly difficult to contend with the per- 
ception that it was little more than a pliant tool of the military. 
These perceptions were further strengthened in October 1986, when 
the president, despite open protests, was forced to dismiss four cabi- 
net ministers and appoint their replacements from a list prepared 
by the PRD. 

Tensions also increased between the government and opposi- 
tion media within Panama in 1986. Roberto Eisenman, Jr., edi- 
tor of La Prensa, took refuge in the United States, alleging that there 
was a government plot to kill him. Radio Mundial, owned by 
opposition political leader Carlos Ivan Zufiiga, was ordered closed. 
But despite increased protests and international pressures, the gov- 
ernment's hold on power seemed unshaken. 

The situation changed abruptly in June 1987. A long-time power 
struggle within the FDP between Noriega and his chief of staff, 
Colonel Roberto Diaz Herrera, led to the forced retirement of Diaz 
Herrera on June 1 . Six days later, the colonel responded by a series 
of public denunciations, accusing Noriega of involvement in the 
deaths of Torrijos and Spadafora and of using massive fraud to 
ensure the victory of Ardito Barletta in the 1984 elections. The result 
was widespread rioting. The opposition demanded that both 
Noriega and Delvalle resign, and numerous civic and business 
groups formed the National Civic Crusade (Cruzada Civilista 



190 



Government and Politics 



Nacional — CCN) to press for changes in the government. As 
demonstrations spread, the government declared a state of emer- 
gency, suspending constitutional rights and instituting censorship 
(see Administration of Justice; National Security, ch. 5). The CCN 
responded by calling a national strike that paralyzed the economy 
for several days. Violent actions by government forces and anti- 
government demonstrators further polarized public opinion. The 
leadership of Panama's Roman Catholic Church joined in criti- 
cism of the government but urged a peaceful solution to the national 
crisis. Such calls were ignored by the government, which, instead, 
threatened to arrest those involved in the protests and seize the 
property of businesses that joined in the strike, closed the schools, 
and unleashed a virulent propaganda campaign accusing its oppo- 
nents of being linked with United States interests that wanted to 
abort the Panama Canal treaties. 

The general strike collapsed after a few days, but protests did 
not end. Periodic protests, strikes, and demonstrations continued 
throughout the summer and fall of 1987. Relations with the United 
States deteriorated rapidly as the government charged the United 
States embassy with supporting the opposition and bitterly pro- 
tested a United States Senate resolution calling for an investiga- 
tion of the charges made by Diaz Herrera. An attack on the embassy 
by a mob and the arrest of United States diplomatic and military 
personnel by the FDP led to a suspension of military assistance 
by the United States. At the end of 1987, relations were more 
strained than at any time since the 1964 riots. 

The continued civil strife also badly damaged Panama's econ- 
omy. The future of the banking sector seemed especially imperiled 
if the deadlock between the government and its opponents should 
be prolonged. 

In late 1987, it seemed clear that the CCN and the opposition 
political parties could not, by themselves, force a change in either 
the military or civilian leadership. Indeed, their efforts may have 
solidified military support behind Noriega and Delvalle. But it was 
equally clear that the incumbent leadership could neither restore 
business confidence nor stop the steady flight of capital from the 
country. Efforts to portray the conflict as a class struggle or as part 
of a United States plot to retain control of the canal only exacerbated 
the situation. Restoring order, rebuilding the economy, and creating 
faith in the political system were formidable tasks that became more 
difficult with each passing month. Panama, in late 1987, was a 
society in crisis, with a political system that could not function 
effectively, but the government appeared determined to resist any 
effort to produce fundamental changes. 



191 



Panama: A Country Study 
Political Forces 

During the first decades of independence. Panamanian politics 
were largely dominated by traditional, upper-class families in 
Panama City. By the 1940s, however, the populist nationalism of 
Arnulfo Anas and the growing strength of the National Police (later 
the National Guard and then the FDP ) had begun a steady process 
of reducing the oligarchy's ability to control events. Following 
World War II. students and. to a lesser extent, labor groups became 
more active in national politics. The 1968 military coup, which 
brought Torrijos to power, represented both the ascendancy of the 
military as the preeminent political force in Panama and a further 
diminution in the influence of traditional political parties and elite 
families. At the same time, the growth of the Panamanian economy 
gave business and professional organizations greater importance 
and potential influence. 

From the 1964 riots until the 1978 ratification of the Panama 
Canal treaties, the issue of United States control over the Panama 
Canal dominated the national political scene ( see The 1964 Riots, 
ch. 1 ). When treaty ratification largely removed that issue, the focus 
shifted back to internal political conditions, and pressures, both 
domestic and international, for a return to civilian rule mounted 
steadily. Internal political dynamics had changed fundamentally . 
however, during the Torrijos era. His death in 1981 unleashed a 
struggle for power within the military, between the military and 
civilians, and among civilians, which has continued and intensi- 
fied in subsequent years. 

Political Parties 

Panama inherited the traditional political parties of Colombia — 
the Liberal Party and the Conservative Party — which vied against 
one another from 1903 until the 1920s (see Organizing the New 
Republic, ch. 1). This proved to be an unnatural party alignment: 
the Conservatives had never identified strongly with the indepen- 
dence movement and were not able to develop a mass following. 
The dominant political focus was rather on divisions within the 
Liberal Party. In time, the Liberals split into factions clustered 
around specific personal leaders who represented competing elite 
interests. The emergence of Arnulfo Arias and the Panamehistas 
provided a major challenge to the factionalized Liberals. The crea- 
tion of a military-linked party in the 1950s, the National Patriotic 
Coalition (Coalicion Patriotica Nacional — CPN). further reduced 
the Liberals' strength. Liberals (the PLN) did win the 1960 and 
1964 presidential elections, but lost in 1968 to Arnulfo Arias, who 



192 




193 



Panama: A Country Study 

was ousted promptly by the military. In the aftermath of that coup, 
the military declared political parties illegal. Despite this edict, the 
PLN and the PPA survived the period of direct military rule and 
other parties, such as the PDC, actually gained strength during 
this period. 

The first party to register after political parties were legalized in 
late 1978 was the PRD. Designed to unify the political groups and 
forces that had supported Torrijos, the PRD, from its inception, 
was linked closely with and supported by the military. Proclaiming 
itself the official supporter and upholder of Torrijismo, the vaguely 
populist political ideology of Torrijos, the PRD included a broad 
spectrum of ideologies ranging from extreme left to right of center. 
The prevailing orientation was left of center. Like the ruling 
Institutional Revolutionary Party (Partido Revolucionario Insti- 
tucional — PRI) in Mexico, the PRD has managed to co-opt much 
of the Panamanian left, thereby limiting and undermining the 
strength of avowedly Marxist political parties. Unlike the PRI, how- 
ever, the PRD has never been able to separate itself from the mili- 
tary or to gain majority popular support. At times the PRD also 
has claimed a social-democratic orientation, and in 1986 it acquired 
the status of a "consulting member" in the Socialist International. 

According to its declaration of principles, in the late 1980s the 
PRD was a multi-class, revolutionary, nationalistic, and indepen- 
dent party. Its structure included organizations for workers, 
peasants, women, youth, government employees, and professionals. 
It consistently had sought, with some success, to cultivate close ties 
with organized labor. The PRD had 205,000 registered members 
in 1986. It won approximately 40 percent of the votes in the 1980 
elections, but gained only 27.4 percent of the vote in 1984, losing 
its place as the nation's largest party to the PPA. The PRD did, 
however, win thirty-four of the sixty-seven seats in the legislature. 

Because of its inability to muster majority support, the PRD has 
sought electoral alliances with other parties. At first it was allied 
with FRAMPO and the PdP, the orthodox, pro-Moscow com- 
munist party that had earlier supported Torrijos. The PRD later 
cut its ties with the PdP and, together with FRAMPO, joined the 
PLN, PALA, PP, and PR to form the UNADE coalition, which 
supported the 1984 presidential candidacy of Ardito Barletta. 
FRAMPO won only 0.8 percent of the vote in 1984 and lost its 
legal status, as did the PP, but the coalition of the other 4 parties — 
PRD, PLN, PALA, and PR — remained officially in place in the 
late 1980s. 

In the late 1980s, the PLN was only a shadow of its former self. 
It had split repeatedly, including a rift in late 1987 when Vice 



194 



Government and Politics 



President Esquivel began criticizing the policies of President Del- 
valle and was, in turn, ousted from control of the party by a faction 
headed by Rodolfo Chiari. Affiliated with the Liberal International, 
the party won 4.4 percent of the vote in 1984 and gained 1 seat 
in the legislature. Its ideology was generally right of center. 

The PALA was the second largest party in UNADE. PALA won 
7.1 percent of the vote and 7 seats in the legislature in 1984. The 
party's secretary general, Ramon Sieiro Murgas, is Noriega's 
brother-in-law. Despite its title, the party generally has adopted a 
right-of-center, pro-business position. The party experienced con- 
siderable turmoil in 1987, with founder Carlos Eleta Almaran being 
ousted as party president. In addition, one of its seven legislators, 
Mayin Correa, denounced the government's actions during the June 
disturbances, leading, in turn, to efforts to expel her from PALA. 

The PR was a right-of-center party dominated by the aristocratic 
Delvalle and Bazan families. In return for joining UNADE, Del- 
valle was given one of the vice presidential nominations and became 
president following the forced resignation of Ardito Barletta. The 
party won 5.3 percent of the popular vote and gained 3 seats in 
the legislature in the 1984 elections. 

The principal opposition party was the PPA, which won 34.5 per- 
cent of the votes in the 1984 elections, the largest percentage gained 
by any party. Since its founding in the 1940s, the Panamenista 
Party had served as the vehicle for the ambitions and populist ideas 
of Arnulfo Arias. After a party split in 1981, the great majority 
of Panamenistas stayed with Arias and designated themselves as 
Arnulfistas, and their party became known as the PPA. The smaller 
faction adopted Partido Panamenista (PP) as its name. Strongly 
nationalist, the PPA was anticommunist and antimilitary and 
advocated a populist nationalism that would restrict the rights of 
Antillean blacks and other immigrant groups. 

Arias turned eighty-six in 1987 and could no longer exercise the 
leadership or muster the popular support he enjoyed in the past. 
He remained politically active, however, and his party was offi- 
cially committed to installing him as president. With fourteen seats, 
it controlled the largest opposition bloc in the legislature, but its 
future, given the age and growing infirmity of its leader, was highly 
uncertain. 

In 1984 the PPA had joined with several other parties in the 
ADO, which supported the presidential candidacy of Arnulfo Arias. 
The most important of these parties was the Christian democratic 
PDC, which won 7.3 percent of the 1984 vote but secured only 
5 seats in the legislature. Its leader, Ricardo Arias Calderon, was 
a vice presidential candidate on the Arnulfo Arias ticket and 



195 



Panama: A Country Study 

emerged in 1987 as the most visible spokesman of the political 
opposition. The party was an active member of both the Latin 
American and world organizations of Christian democratic par- 
ties. The party was anticommunist and was generally located in 
the center of the political spectrum, advocating social reforms and 
civilian control over the military. 

MOLIRENA also joined ADO and won 4.8 percent of the vote 
and 3 seats in the legislature in 1984. It was a pro-business coali- 
tion of several center-to-right political movements including dissi- 
dent factions of the PLN. Its supporters worked closely with the PDC. 

In addition to the seven principal parties that each won more 
than 3 percent of the 1984 vote, thereby gaining representation 
in the legislature and maintaining their legal status as registered 
parties, there were numerous other, smaller political parties and 
organizations that lacked this legal status. They included the 
Authentic Liberal Party (Partido Liberal Autentico — PLA), a dis- 
sident Liberal faction that supported ADO in 1984, and the PP, 
a small group that broke with Arnulfo Arias and supported UNADE 
in 1984. There were also several groups on the far left, including 
the Moscow-oriented PdP, the Socialist Workers Party, and the 
Revolutionary Workers Party. All were Marxist, all ran presiden- 
tial candidates in 1984, and each won less than 1 percent of the vote. 

The PAPO was an independent group with a social democratic 
orientation. It had ties to the leading opposition newspaper, La 
Prensa, and was a constant critic of the government and of the FDP . 
It ran Carlos Ivan Zuniga for president in 1984 but gained only 
2.2 percent of the vote, thus forfeiting its legal status. 

The Panama Defense Forces 

Although Panama's Constitution expressly prohibits military 
intervention in party politics, there was general agreement in the 
late 1980s that the FDP and its commander, General Noriega, con- 
trolled the internal political process. The PRD and, to a lesser 
extent, PALA, were seen as vehicles for military influence in poli- 
tics. Presidents served at the pleasure of the military, and elections 
were widely viewed as subject to direct manipulation by the FDP. 
The officer corps had virtually total internal autonomy, including 
control over promotions and assignments and immunity from civil 
court proceedings. The military was supposed to have begun a turn- 
over of power to civilians in 1978, but in 1986 Professor Steve Ropp 
noted that "the system of government, established by General Tor- 
rijos, which allows the Defense Forces high command to rule 
through the instrument of the Democratic Revolutionary Party, 
remains largely intact." 



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Government and Politics 



If anything, the influence and power of the FDP increased after 
1978. The force expanded from a total of 8,700 in 1978 to nearly 
15,000 by the end of 1987. The military retained direct control 
of all police forces and expanded its influence in such areas as immi- 
gration, railroads, ports, and civil aviation. Three presidents were 
forced to resign, and the military itself changed commanders several 
times without consulting the president or the legislature. 

The small size and pyramidical rank structure of the FDP's officer 
corps helped maintain unity and concentrated effective power in 
the hands of the commander. This situation facilitated communi- 
cations and consultations among senior officers, inhibited dissent, 
and made any effort to defy the wishes of the commander both 
difficult and dangerous. The total failure of the efforts of former 
Colonel Diaz Herrera to gain support from within the officer corps, 
following his forced retirement in June 1987, illustrated both the 
cohesion of this body and the ability of its commander to dominate 
subordinate officers. Internal discipline within the officer corps was 
very strong, pressures to support existing policies were constant, 
and any deviation from these norms was likely to be fatal to an 
officer's hopes for future advancement. 

The gap between the FDP and the civilian population was great 
and probably widening in the late 1980s. Part of this distance was 
the result of a deliberate policy by the high command, which actively 
promoted institutional identity defined in terms of resisting any 
external efforts to reduce the military's power or privileges or to 
gain any degree of control over its internal affairs. In this context, 
any criticisms of the FDP's commander, of the FDP's role in poli- 
tics or the economy, and any charges of corruption have been 
viewed as attacks on the institution, and mass meetings of junior 
officers have been held to express total support for the high 
command. 

Although there was no ideological unity within the officer corps, 
there was a consensus in favor of nationalism (often defined as sus- 
picion of, if not opposition to, United States influence), develop- 
mentalism, and a distrust of traditional civilian political elites. There 
was also an overwhelming consensus against allowing Arnulfo Arias 
to return to power. The FDP was very proud of its extensive civic- 
action program, which it has used to gain political support in rural 
areas. It also saw itself as the promoter and guarantor of the populist 
political heritage of Torrijos. 

Business, Professional, and Labor Organizations 

Traditionally, sectoral interest groups have played a minor role 
in Panamanian politics. Commercial and industrial interests were 



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Panama: A Country Study 

expressed largely within the extended family systems that constituted 
the oligarchy. A heavy reliance on government jobs inhibited the 
development of professional organizations that could reflect middle- 
class interests. The slow rate of industrial development, the major 
role of the United States as an employer of Panamanians in the 
Canal Zone, and fragmentation and infighting within the labor 
movement all contributed to keeping that sector chronically weak. 
Nevertheless, the absence of political parties during most of the 
1970s, accompanied by economic expansion, led to a growing 
importance for sectoral groups as vehicles for the expression of 
political interests. Frustrations over the failures of the political 
process and the evident inability of political parties to control the 
military gave this trend further impetus during the 1980s. As a 
result, sectoral groups emerged during the 1987 upheavals as major 
political actors, mounting a significant challenge to military domi- 
nation of the political process. 

In the late 1980s, Panamanian businesses and professions were 
organized into numerous specialized groups, such as the Bar Asso- 
ciation, the National Union of Small and Medium Enterprises, the 
Panamanian Banking Association, and the National Agricultural 
and Livestock Producers. Two of the most important organizations 
were the Chamber of Commerce, Industries, and Agriculture of 
Panama and the Panamanian Business Executives Association. 
These and numerous other organizations were included in the 
National Free Enterprise Council (Consejo Nacional de la Empresa 
Privada — CONEP). The various groups within CONEP have often 
disagreed on issues, making it difficult to present a position of com- 
mon interest. On two issues, however, protection from government 
encroachments on the private sector and the maintenance of their 
position vis-a-vis labor, members of CONEP consistently have 
found a unified position. Moreover, sentiment has grown increas- 
ingly within CONEP and many of its affiliated organizations that 
the problems facing the private sector extend beyond specific issues 
to growing problems within the political system as a whole. Resent- 
ment over continued military domination of the political system, 
a perception of increased corruption and inefficiency within the 
government, and a feeling that political conditions were increas- 
ingly unfavorable for business all combined to make many busi- 
ness leaders willing to join, and even lead, open opposition to the 
government when the June 1987 crisis erupted. 

During the June 1987 crisis, business groups played a key role 
in the organization and direction of the CCN, which spearheaded 
protests against the regime. Many of the major bodies within 
CONEP, such as the Chamber of Commerce and Panamanian 



198 



Government and Politics 



Business Executives Association, became formal members of the 
CCN. A total of more than 130 business, professional, civic, and 
labor groups joined the crusade, which undertook the task of orga- 
nizing, directing, and coordinating the campaign to force Noriega 
out of power and to reduce the role of the military in government. 
The crusade deliberately excluded political parties from its mem- 
bership and active politicians from its leadership. The presidents 
of CONEP and of the Chamber of Commerce took major leader- 
ship roles within the crusade, which emphasized peaceful demon- 
strations, economic pressures, and boycotts of government 
enterprises as means of forcing change on the government. The 
FDP responded with a campaign of measured violence and intimi- 
dation against the crusade's leaders and supporters. By the fall of 
1987, most of the original leadership had been driven into exile, 
and the effort appeared to have lost much of its impetus. The eco- 
nomic pressures continued, however; exiled leaders undertook a 
major international propaganda campaign against the government, 
and business groups within Panama kept up economic pressures, 
which began to have a serious impact on the economy and on 
government revenues. In December 1987, Delvalle offered an 
amnesty to most of the exiled crusade leaders, but this action neither 
appeased the opposition among the business and professional classes 
nor in any way responded to the causes that had created the crusade. 

Although at the end of 1987 the crusade had not been able to 
force basic change on the government and the military, neither had 
the government and the FDP been able to end the campaign of 
civic opposition. How long the CCN would endure and what ulti- 
mate success it might enjoy remained unanswered questions, but 
the role and power of business and professional organizations within 
the Panamanian political structure had undergone fundamental 
change. 

The Panamanian labor movement traditionally had been frag- 
mented and politically weak. The political weakness of labor was 
exacerbated further by the fact that Panamanians working in the 
Canal Zone belonged to United States rather than Panamanian 
labor unions. The 1977 Panama Canal treaties made provisions 
for the collective bargaining and job security of these workers, and 
it was likely that Panamanian unions would replace United States 
unions when Panama assumed full control over the canal, but in 
the late 1980s, most canal workers remained with the original 
unions. 

Labor organizations grew significantly in size and importance 
under Torrijos, who actively supported this trend. Major labor fed- 
erations included the relatively moderate Confederation of Workers 



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Panama: A Country Study 

of the Republic of Panama, which had approximately 35,000 mem- 
bers, and the somewhat smaller, leftist, antibusiness National Work- 
ers' Central, which had ties with the Moscow-oriented PdP. There 
was also the Isthmian Workers' Central, a small confederation 
linked to the PDC. In 1972 these three bodies created the National 
Council of Organized Workers (Consejo Nacional de Trabajadores 
Organisados — CONATO) to give them a more unified voice and 
greater influence on issues of interest to organized labor. Other 
unions, including the important National Union of Construction 
and Related Workers, have since joined CONATO, increasing its 
affiliates to 12 with a claimed combined membership of 150,000. 
The diverse labor alliance in CONATO was an uneasy one, but 
the council succeeded in generating greater unity and militancy 
than had its component unions individually. A 1985 general strike 
called by CONATO forced the government to suspend plans to 
amend the labor code. Ultimately, however, the code was amended, 
reducing workers' job security. A March 1986 strike protesting these 
changes failed. CONATO reacted by urging its members to resign 
from parties that supported the government. 

Despite the 1985-86 problems, labor generally was more sup- 
portive of the government than of the political opposition. This 
situation, however, was strained by the disturbances that began 
in June 1987. A few smaller labor groups joined the civic crusade, 
but CONATO did not. The government's problems, however, were 
compounded by a series of strikes by the public employees' union, 
the National Federation of Associations and Organizations of Public 
Employees (Federacion Nacional de Asociaciones y Sindicatos de 
Empleados Publicos— FENASEP). The leadership of FENASEP 
even went so far as to threaten to respond to any government effort 
to dismiss government workers by publishing lists of all those on 
the government payroll "who do not go to work." CONATO was 
also critical of many government actions, demanding that closed 
newspapers and radio stations be reopened and that the govern- 
ment open a dialogue to end the continuing crisis. Whereas labor's 
influence in Panamanian politics remained limited, it was increasing 
steadily and was something that neither the government nor its 
political opposition could control or take for granted. 

Students 

University and secondary school students have long played a lead- 
ing role in Panama's political life, often acting as advocates of the 
interests of the lower and middle classes against the oligarchy and 
the military. Students also played a leading role in demonstrations 
against United States control over the Canal Zone. Using a 



200 



Government and Politics 



combination of force and rewards, the Torrijos government largely 
co-opted the students at the University of Panama, gaining con- 
siderable influence over the Federation of Panamanian Students 
(Federacion de Estudiantes Panamenos — FEP), the largest of several 
student federations. But relations between the government and stu- 
dent groups began to deteriorate in 1976, and a variety of com- 
peting student federations developed, notably the Federation of 
Revolutionary Students (Federacion de Estudiantes Revolucion- 
arios — FER), a group on the far left. Student groups were leaders 
in the opposition to ratification of the Panama Canal treaties, object- 
ing largely to the continued presence of United States military bases 
in Panama. 

Students and some teachers' groups played a major role in the 
1987 protests. At least one university student was killed by the FDP, 
and the government closed the University of Panama twice and 
closed all secondary schools during the June protests. Periodic stu- 
dent protests took place throughout the year, frequently produc- 
ing violent confrontations with the security forces. Although most 
student organizations were not part of the CCN, their growing 
opposition to the political role of the FDP and the policies of the 
government made the task of restoring order and stability even more 
difficult. 

The Roman Catholic Church 

Although Panama was nearly 90 percent Roman Catholic in the 
late 1980s, the church had a long tradition of noninvolvement in 
national politics (see Religion, ch. 2). Weak organization and a 
heavy dependence on foreign clergy (only 40 percent of the nation's 
priests were native-born Panamanians) inhibited the development 
of strong hierarchical positions on political issues. As a result, 
Panamanian politics largely avoided the anticlericalism that was 
so prevalent in much of Latin America. Church concern over social 
issues increased notably in the 1960s and 1970s, and there were 
conflicts between the hierarchy and the Torrijos government, espe- 
cially following the disappearance in 1971 of a prominent reform 
priest, Father Hector Gallegos. 

In the late 1980s, the church hierarchy was headed by Archbishop 
Marcos Gregorio McGrath, a naturalized Panamanian citizen and 
a leader among the Latin American bishops. McGrath and the other 
bishops strongly supported Panama's claims to sovereignty over 
the Canal Zone and urged ratification of the Panama Canal treaties. 
Nevertheless, the church leadership also criticized the lack of 
democracy in Panama and urged a return to elected civilian rule. 
In 1985, as political tensions began to mount, the archbishop called 



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Panama: A Country Study 



for an investigation into the murder of Dr. Hugo Spadafora and 
urged both the government and the opposition to enter into a 
national dialogue. When the 1987 disturbances began, the church 
stepped up its criticism of the government, accusing the military 
of having "beaten civilians without provocation" and of using "tac- 
tics to humiliate arrested individuals." Priests were frequently 
present at CCN rallies and demonstrations, and masses downtown 
became a focal point for some CCN activities. Priests also stayed 
with Diaz Herrera in his house after he issued his June 1987 charges 
against Noriega and the government, and when the house was 
stormed by the FDP and Diaz Herrera arrested, the bishops 
demanded his release and denounced government restrictions on 
the press. But the church stopped short of endorsing the CCN or 
calling for specific changes in the government and the FDP. Instead, 
it stressed the need for dialogue and reconciliation. The archbishop's 
insistence on pursuing a moderate, neutral course in the conflict 
did not satisfy all of the church leadership. In November two assis- 
tant bishops and a large number of clergy issued their own letter, 
denouncing government actions and urging changes in the con- 
duct of the military. In late 1987, the church was becoming more 
active but was finding it difficult to agree on the manner and nature 
of that activity. 

The Communications Media 

The press, radio, and, more recently, the television of Panama 
have a history of strong political partisanship and rather low stan- 
dards of journalistic responsibility. The government has subsidized 
some news outlets and periodically censored others. During most 
of the Torrijos era, the press and radio were tightly controlled but, 
following the ratification of the Panama Canal treaties, a signifi- 
cant degree of press freedom was restored. It was at this time that 
the most significant opposition paper, La Prensa, was founded. 

Throughout the 1980s, conflicts between the government and 
the opposition media, notably La Prensa, escalated. The government 
and the FDP blamed La Prensa and its publisher, Roberto 
Eisenmann, Jr., for much of the negative publicity they received 
in the United States. The paper was attacked, its writers were 
harassed, and in 1986 Eisenmann fled to the United States, charging 
that his life had been threatened. 

Events in 1987 increased the level of conflict between the govern- 
ment and the media. Strict censorship was instituted over all news- 
papers and radio and television news broadcasts. In response, three 
opposition papers suspended publication. Publication was resumed 
in late June, but in July the government closed La Prensa and the 



202 



Government and Politics 



two other papers, as well as two radio stations. The English-language 
Panama Star and Herald, the nation's oldest newspaper, was forced 
out of business. The government pressured remaining stations and 
newspapers to engage in self-censorship and attempted to crack 
down on foreign press coverage, expelling several correspondents. 
In October President Delvalle sent to the legislature a proposed 
press law that would have made the publishing of "false, distorted, 
or inexact news" a crime for which individual journalists would 
be held responsible. Even the pro-government media attacked this 
proposal, which the legislature rejected. Although there were indi- 
cations that the opposition media would be allowed to re-open in 
1988, it seemed unlikely that government efforts to control news 
coverage would cease. 

Foreign Relations 

Panama's strategic location, the traditional domination of both 
the economy and the political agenda by the canal, and the strong 
influence exerted by the United States throughout most of Pana- 
ma's independent history have combined to magnify the impor- 
tance of foreign policy in the nation's political life. From the signing 
of the Hay-Bunau-Varilla Treaty in 1903 until the ratification of 
the Panama Canal treaties in 1978, Panama's overriding concern, 
both domestically and internationally, was to gain sovereignty over 
the Canal Zone and control over the canal itself. Determined to 
obtain sovereignty over its entire national territory, but aware of 
the limitations posed by its weakness in comparison with the United 
States, Panama sought the support of other nations, particularly 
in multilateral forums, in its efforts to renegotiate the canal treaties. 
In pursuing this end, Panama gained an international visibility 
much greater than that of most nations of similar size. 

Traditionally, all other foreign policy matters were subordinated 
to Panama's concern with the canal issue. Secondary emphasis was 
given to commercial interests in dealings with other nations. Vehi- 
cles of international trade, such as the Colon Free Zone, interna- 
tional banking, and shipping, were central factors in Panama's 
foreign economic relations. In the 1980s, the issue of the mount- 
ing foreign debt also had become the focus of increasing attention 
and concern. 

The experience and visibility gained in the long effort to obtain 
international support for Panama's stance in the canal negotiations 
were carried over into the years following the signing of the new 
treaties, as exemplified by Panama's role in the 1978-79 Nicaraguan 
civil conflict and its participation in the Contadora peace process 
(see Glossary). Panama also has tried, with limited success, to 



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Panama: A Country Study 

appeal to the same Latin American and Third World sentiments 
that won it support for its efforts to renegotiate the Panama Canal 
treaties to gain support in subsequent disputes with the United 
States. Although foreign policy concerns were not as dominant in 
the 1980s as in previous decades, they occupied a high priority for 
Panama's government and still centered on relations with the 
United States. This pattern was likely to persist until at least the 
year 2000. 

Relations with the United States: The Panama Canal 

United States and Panamanian relations on issues connected to 
the control, operation, and future of the canal were conducted within 
the framework of the 1977 Panama Canal treaties. The negotia- 
tion of these treaties took several years and aroused domestic politi- 
cal controversies within both nations (see The Treaty Negotiations; 
The 1977 Treaties and Associated Agreements, ch. 1). Negotia- 
tions were finally concluded in August 1977, and the following 
month the treaties were signed in Washington. 

The treaties were ratified in Panama by slightly more than two- 
thirds of the voters in a national plebiscite. Ratification by the 
United States Senate was much more difficult and controversial 
and was not completed until April 1978. During the ratification 
process, the Senate added several amendments and conditions, nota- 
bly the DeConcini Condition, which declared that if the canal were 
closed or its operations impaired, both the United States and 
Panama would "have the right to take such steps as each deems 
necessary . . . including the use of military force in the Republic 
of Panama, to reopen the canal or restore the operations of the 
canal." Despite an additional amendment, which specifically 
rejected any United States "right of intervention in the internal 
affairs of the Republic of Panama or interference with its political 
independence or sovereign integrity," the Senate's changes were 
met with strong protests from Panama, which never ratified the 
new amendments. Formal ratifications, however, were exchanged 
in June, and the treaties came into force on October 1, 1979. 

To implement the provisions of the treaties establishing the new 
Panama Canal Commission, to regulate the conditions for canal 
employees, and to provide for the handling and disbursement of 
canal revenues, the United States Congress enacted Public Law 
(PL) 96-70, the Panama Canal Act of 1979. Several provisions 
of this act immediately became a focus for ongoing controversy 
between the two nations. Panamanians objected to provisions for 
the use of canal revenues to pay for early retirements for United 
States employees, to finance travel for education by the dependents 



204 




A ship passes through the Panama Canal near the Culebra Cut 
Courtesy Inter-American Development Bank 



205 



Panama: A Country Study 

of United States employees, and to provide subsidies to make up 
for any loss of earning power when, as required under the treaties, 
United States employees lost access to United States military com- 
missaries. By 1986 Panamanian authorities were claiming that such 
provisions had cost their nation up to US$50 million. The claim 
was largely based on the fact that Panama had not been receiving 
the up to US$10 million annual contingency payment from Panama 
Canal Commission profits provided for by the treaties. The com- 
mission explained that this was because the surplus simply did not 
exist, a fact that Panama, in turn, attributed to provisions of 
PL 96-70. 

The level of Panamanian complaints about PL 96-70 and the 
intensity of government charges of noncompliance by the United 
States in other areas were often influenced by the overall state of 
relations between the two nations. As tensions increased during 
1986 and 1987, Panamanian complaints became more frequent and 
passionate. United States executive and congressional pressures and 
the suspension of aid that followed the June 1987 disturbances were 
portrayed by the government and its supporters as part of a United 
States plot to block implementation of the 1977 treaties and/or to 
maintain the United States military bases in Panama beyond the 
year 2000. In the months that followed, the government stepped 
up this campaign, attempting to link the opposition with elements 
in the United States Congress who allegedly were trying to over- 
turn the treaties. Such charges, however, seemed more an effort 
to influence domestic opinion than a reflection of actual concerns 
over the future of the treaties. 

Article XII of the Panama Canal Treaty provides for a joint study 
of "the feasibility of a sea-level canal in the Republic of Panama." 
In 1981 Panama formally suggested beginning such a study. After 
some discussion, a Preparative Committee on the Panama Canal 
Alternatives Study was established in 1982, and Japan was invited 
to join the United States and Panama on this committee. The com- 
mittee's final report called for the creation of a formal Commis- 
sion for the Study of Alternatives to the Panama Canal, which was 
set up in 1986. Although there was a general perception that the 
costs of such a canal would outweigh benefits, the commission was 
still studying the problem in late 1987, and further action in this 
area would await the conclusion of its labors. 

One continuing bone of contention related to the treaties was 
the presence and function of United States military bases in Panama 
(see United States Forces in Panama, ch. 5). United States mili- 
tary forces in Panama numbered slightly under 10,000. The United 
States military also employed 8,100 civilians, 70 percent of whom 



206 



Government and Politics 



were Panamanian nationals. In addition to the units directly 
involved in the defense of the canal, the United States military 
presence included the headquarters of the United States Southern 
Command, responsible for all United States military activities in 
Central and South America, the Jungle Operations Training 
Center, the Inter- American Air Forces Academy, which provided 
training for Latin American air forces, and the Special Operations 
Command-South. Until 1984 Panama also was home to the United 
States Army School of the Americas, which trained Latin Ameri- 
can army officers and enlisted personnel, but the facility housing 
that institution reverted to Panama in 1984, and when negotia- 
tions with Panama over the future of the school broke down, the 
United States Army transferred the operation to Fort Benning, 
Georgia. 

Issues involving the United States military presence included the 
possible retention of some bases beyond the year 2000, the use of 
the bases for activities not directly related to the defense of the canal, 
most notably allegations of their use in support of operations directed 
against Nicaragua's government, and, since June 1987, charges 
by the United States of harassment and mistreatment of United 
States military personnel by Panamanian authorities. There were 
also problems relating to joint manuevers between United States 
and Panamanian forces, exercises designed to prepare Panama to 
assume responsibility for the defense of the canal (see Canal 
Defense, ch. 5). These manuevers were suspended in 1987, in part 
because of a United States congressional prohibition on the use 
of government funds for "military exercises in Panama" during 
1988. 

Despite such problems, the implementation of the 1977 treaties 
has continued on schedule and the United States has stated repeat- 
edly its determination to adhere to the provisions and transfer full 
control of the canal to Panama in the year 2000. An October 1987 
effort to amend the fiscal year (FY) 1988 foreign relations authori- 
zation act to include a sense of the Senate resolution that the United 
States should not have ratified the treaties and that they should 
be voided if Panama refused to accept the DeConcini Condition 
within six months was defeated by a vote of fifty-nine to thirty- 
nine. Barring a much higher level of turmoil in Panama that would 
directly threaten canal operations, it appeared highly likely that 
the canal would become fully Panamanian in the year 2000. 

Other Aspects of Panamanian-United States Relations 

Panamanian relations with the United States, in areas other than 
those related to the canal, have undergone increasing strains since 



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Panama: A Country Study 



the 1985 ouster of President Ardito Barletta. The United States 
protested this action by reducing economic assistance to Panama 
and began pressuring Panama to reform its banking secrecy laws, 
crack down on narcotics trafficking, investigate the murder of 
Spadafora, and reduce the FDP's role in the government. When 
these points were raised by United States ambassador-designate 
to Panama Arthur Davis in his confirmation hearings, Panamanian 
officials issued an official complaint, claiming that they were the 
victim of a "seditious plot" involving the United States Depart- 
ment of State, Senator Jesse Helms, and opposition politicians in 
Panama. 

Additional problems continued to arise throughout 1 986 and early 
1987. In April 1987, the United States Senate approved a nonbind- 
ing resolution calling for a 50-percent reduction in assistance to 
Panama because of alleged involvement by that nation's officials 
in narcotics trafficking. The Panamanian legislature responded with 
a resolution of its own, calling for the withdrawal of Panama's 
ambassador in Washington. Hearings on Panama held by Sena- 
tor Helms produced further controversy, especially when a Senate 
resolution called on the United States Central Intelligence Agency 
to investigate narcotics trafficking in Panama. Again Panama pro- 
tested. The FDP issued a resolution accusing Helms of a "malevo- 
lent insistence on sowing discord," and the Panamanian 
representative to the Nonaligned Movement's meeting in Zim- 
babwe charged that the United States was not fulfilling the Panama 
Canal treaties. 

Continued United States pressure in such areas as human rights, 
political reform, narcotics trafficking, and money laundering, as 
well as conflicts over economic matters, including a reduction in 
Panama's textile quota, kept relations tense during the first months 
of 1987. In March Panama issued an official protest, charging the 
United States with exerting "political pressures damaging to Pana- 
ma's sovereignty, dignity, and independence." This, however, did 
not deter Senate passage, a few days later, of a nonbinding resolu- 
tion rejecting presidential certification of Panamanian cooperation 
in the struggle against the drug trade. President Ronald Reagan's 
certification that Panama was cooperating in the struggle against 
drug trafficking was based on some Panamanian concessions on 
bank secrecy laws and a highly publicized narcotics and money- 
laundering sting operation (see Finance, ch. 3; Involvement in 
Political and Economic Affairs, ch. 5). 

The deterioration in relations accelerated following the outbreak 
of disturbances in June 1987. United States calls for a full investi- 
gation of the allegations made by Diaz Herrera and for movement 



208 



Government and Politics 



toward "free and untarnished elections" led to Panamanian charges 
of United States interference in its internal affairs. 

The Legislative Assembly adopted a resolution demanding the 
expulsion of the United States ambassador, and the head of the 
PRD charged that United States pressures were part of a plot "not 
to fulfill the obligations of the Carter-Torrijos Treaties" and were 
also designed "to get Panama to withdraw from the Contadora 
Group." Panama took its protest over United States policy and 
the Senate resolution to the Organization of American States (OAS), 
which on July 1 adopted, by a vote of seventeen to one with eight 
abstentions, a resolution criticizing the Senate resolution and call- 
ing for an end to United States interference in Panama's internal 
affairs. On June 30 a government-organized mob attacked the 
United States embassy, inflicting over US$100,000 in damages. 
The United States responded by suspending economic and mili- 
tary assistance until the damage was paid for. Panama apologized 
for the attack and, at the end of July / paid for the damage, but 
the freeze on United States assistance remained in effect as a demon- 
stration of United States displeasure with the internal political 
situation. 

Relations between the two nations failed to improve during the 
balance of 1987. Attacks on United States policies by pro- 
government politicians and press in Panama were almost constant. 
The actions of the United States ambassador were an especially 
frequent target, and there were suggestions that he might be 
declared persona non grata. There was also a growing campaign 
of harassment against individual Americans. In September the eco- 
nomic officer of the United States embassy was arrested while 
observing an antigovernment demonstration. The following month, 
nine American servicemen were seized and abused under the pretext 
that they had been participating in such demonstrations. United 
States citizens driving in Panama were repeatedly harassed by the 
Panamanian police. Restrictions also were increased on United 
States reporters in Panama. 

For its part, the United States kept up pressure on Panama. In 
August 1987, the secretary of state announced that the freeze on 
United States aid would remain in effect, despite Panama's hav- 
ing paid for the damage done to the embassy. In November the 
United States cancelled scheduled joint military exercises with 
Panama. In December Congress adopted a prohibition on economic 
and military assistance to Panama, unless the United States presi- 
dent certified that there had been "substantial progress in assur- 
ing civilian control of the armed forces," "an impartial investigation 
into allegations of illegal actions by members of the Panama Defense 



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Panama: A Country Study 

Forces," agreement between the government and the opposition 
on "conditions for free and fair elections," and "freedom of the 
press." The same bill suspended Panama's sugar quota until these 
conditions were met (see Crops, ch. 3). Panama responded by 
ordering all personnel connected with the United States Agency 
for International Development mission out of the country. 

At the end of 1987, United States-Panamanian relations had 
reached their worst level since at least 1964. On the United States 
side, there was a high degree of agreement between the executive 
branch and the Congress that fundamental changes in both the 
domestic and international behavior of Panama's government were 
needed. There was little sign of movement toward resolving any 
of the basic issues that divided the two nations, and it appeared 
that this deadlock would continue until there was a change in the 
Panamanian leadership's position or composition. 

Relations with Central America 

Although it is part of the same geographic region as the coun- 
tries of Central America (see Glossary), Panama historically has 
lacked strong political and economic ties with the five nations imme- 
diately to its north. Panama was not a member of either the Cen- 
tral American Common Market or the Central American Defense 
Council, although it did have observer status with the latter body. 
Under the rule of Torrijos, however, Panama actively sought to 
expand its contacts with Central America. At first, much of this 
was related to the effort to gain support in negotiations with the 
United States over a new canal treaty. During the Nicaraguan civil 
conflict of 1978-79, Torrijos gave political and military support 
to the Sandinista guerrillas seeking to overthrow the dictatorship 
of Anastasio Somoza. At the June 1979 OAS foreign ministers meet- 
ing on Nicaragua, Panama allowed the foreign minister-designate 
of the Sandinista-organized provisional government to sit with the 
Panamanian delegation. After the Sandinistas took power, Torrijos 
offered to train their military and police forces. But the Panama- 
nian mission soon found itself reduced to training traffic police, 
and Torrijos, frustrated by growing Cuban influence in Nicaragua, 
withdrew his advisers. Since then, Panamanian relations with 
Nicaragua have been of lessened importance. Panamanian leaders 
have criticized United States efforts directed against the Sandinis- 
tas, but they also have criticized Sandinista policies. Nevertheless, 
during the June 1987 crisis in Panama, Nicaraguan President 
Daniel Ortega visited Panama, and the Nicaraguan government 
expressed strong support for Delvalle and Noriega. 



210 



Government and Politics 



Torrijos also had attempted to influence internal events in El 
Salvador, where he supported the reform efforts of Colonel Adolfo 
Majano, a military academy classmate of his, who had been named 
to the ruling junta in 1979. But Majano was removed from power 
in 1980 while visiting Panama, largely ending Panamanian influ- 
ence in that nation. 

Relations with Costa Rica were cool for several decades, following 
a 1921 settlement of the border dispute between the two nations, 
a settlement that Panama viewed as largely unfavorable to its inter- 
ests. The opening of the Pan-American Highway between the two 
nations led to an increase in commercial ties and contributed to 
a steady strengthening of bilateral relations in the 1960s and 1970s. 
During the 1978-79 Nicaraguan civil conflict, Panama offered to 
help defend Costa Rica's northern border from incursions by 
Nicaraguan forces, and, during the war's last months, then Costa 
Rican president Rodrigo Carazo and Torrijos worked closely 
together to facilitate the flow of supplies to the Sandinista insur- 
gents. Cordial relations were maintained with Carazo 's successor, 
Luis Alberto Monge, but numerous problems have emerged since 
Oscar Arias became president of Costa Rica in 1986. These began 
with the discovery, in Costa Rican territory, of the mutilated body 
of leading Panamanian critic Spadafora. Commercial disputes also 
began to disrupt trade. Early in 1987, the two nations signed an 
agreement to regulate commerce in the border region, but a few 
days later, Panama closed the border, claiming that Costa Rica 
was violating the agreement. The border was reopened after a few 
days, and in March presidents Delvalle and Arias signed an agree- 
ment designed to deal with commercial problems and to promote 
cooperation in areas such as health and education. Costa Rican 
press criticism of Panamanian government policy following the June 
disturbances, however, led to a cooling in relations. In December 
the Panamanian ambassador to Costa Rica charged that United 
States and Costa Rican officials were plotting to organize an inva- 
sion of Panama and to assassinate Noriega. Costa Rica rejected 
the charges, for which no supporting evidence was produced. 
Although this issue soon faded, relations between the two nations 
at the end of 1987 were less cordial than they had been in preced- 
ing years. 

Reflecting both the growth of Panamanian involvement in Cen- 
tral American affairs and the expanded international role that the 
nation has sought was Panama's participation in the Contadora 
peace process (see Glossary). In January 1983, Panama invited the 
foreign ministers of Mexico, Venezuela, and Colombia to meet 
at the island resort of Contadora to discuss ways of mediating the 



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Panama: A Country Study 

conflicts in Central America. The result was the formation of the 
Contadora Group, a four-nation effort to promote a peaceful reso- 
lution of Central American conflicts. Although Panama's role in 
the mediating process was not so prominent as that of some of the 
other nations, it did give Panama increased visibility and prestige 
in international relations. Panama was also the site for many of 
the group's meetings with Central American representatives. 
Although the Contadora peace process failed to produce the hoped- 
for peace treaty, and, since 1987, has taken a backseat to the peace 
proposals of Costa Rica's president Arias, the Contradora Group 
still exists and, under the Arias Plan, could play a significant role 
in dealing with security issues involving Central American states. 

Bilateral Relations with Other Nations 

The number of nations with which Panama maintains formal 
diplomatic relations expanded during the 1970s, in part because 
of the campaign to renegotiate the canal treaties and in part because 
of its role as a commercial, banking, and trading center. During 
the 1980s, economic difficulties contributed to slowing, but not 
reversing this trend toward expanded international contacts. In most 
cases, the focus on bilateral relations was on economic issues, with 
political matters more frequently addressed through multilateral 
forums. 

Relations with Cuba have been a subject of some controversy, 
both within Panama and in Panama's relations with the United 
States. Panama broke relations with Cuba in the 1960s, but 
re-established them in the early 1970s, and by the end of the decade, 
Cuba's diplomatic mission in Panama City was second only to that 
of the United States in the number of its personnel. Torrijos openly 
solicited Cuban support during the canal negotiations, but Cuban- 
Panamanian relations generally have been based more on commer- 
cial than political grounds. During the 1970s, Cuba made extensive 
use of the Colon Free Zone to obtain materials that the United 
States trade embargo of Cuba made it difficult to obtain directly. 

Relations with Cuba have been a side issue in disputes between 
Panama and the United States. Cuba has openly supported Noriega 
and attempted to portray criticisms of the general as part of a United 
States plot to sabotage the Panama Canal treaties. The United 
States, for its part, has accused Panama of participating in the illegal 
shipment of American high-technology equipment to Cuba. 

Panama's relations with its southern neighbor, Colombia, have 
never been close since Panama broke away from Colombia and 
declared its independence (see The 1903 Treaty and Qualified 
Independence, ch. 1). Part of this coolness was a function of poor 



212 



Government and Politics 



communications; the border area is wild and thinly populated and 
represents the last gap in the Pan-American Highway system (see 
fig. 8). Relations have been strained by Panamanian concerns that 
Colombian settlers and guerrillas were moving into areas on the 
Panamanian side of the border and by the prevalent belief in the 
Colombian military that Panama was supporting Colombian guer- 
rilla groups. 

Relations with other states of Latin America and the Caribbean 
were of lesser importance in the late 1980s. There was some 
strengthening of ties with Venezuela in the 1970s, spurred by the 
economic resources available to Venezuela as a result of the rise 
in oil prices. But the precipitous fall in oil prices in the mid-1980s 
damaged the Venezuelan economy and reduced the Panamanian 
incentive to seek any further expansion of existing ties. Panama 
sought to expand its ties with the smaller Caribbean states in the 
late 1970s and early 1980s. It even undertook the training of police 
in Grenada. But the more active United States presence in the area, 
signaled by the Caribbean Basin Initiative and the 1984 Grenada 
intervention, undercut this effort, which, in any case, was limited 
by economic, cultural, political, and linguistic factors. 

Relations between Panama and Canada, Western Europe, and 
Japan were largely commercial in nature. Relations with Western 
Europe were somewhat complicated by ties between West Euro- 
pean political parties and opposition groups in Panama. These links 
have been an increasing problem in relations with the Federal 
Republic of Germany (West Germany), whose Christian Demo- 
cratic Party maintained close ties with Panama's opposition Chris- 
tian Democrats. Relations with Japan have assumed growing 
importance, in part because of Japan's participation on the Com- 
mission for the Study of Alternatives to the Panama Canal. 

Panama has long maintained close ties with Israel and, in 1987, 
Delvalle made a state visit to that nation. Nevertheless, late in 1987 
Panama indicated an interest in expanding contacts with Libya, 
with which it had no formal diplomatic relations, and some offi- 
cials expressed the hope that Libya could become a major source 
of financial assistance. It was, however, unclear whether this was 
a serious proposal or simply a tactic in Panama's ongoing dispute 
with the United States. 

Panama had no formal diplomatic relations with the Soviet Union 
or China. In the case of China, this situation was because of Pana- 
ma's maintenance of diplomatic relations with the government on 
Taiwan. Interest in expanded ties with socialist and communist 
nations has, however, increased, fueled by the fact that the Soviet 
Union has become the third largest user of the canal. In March 



213 



Panama: A Country Study 

1987, Panama and Poland initiated a broad program of educational, 
scientific, and cultural cooperation. That same month, the presi- 
dent of Panama's Legislative Assembly visited the Soviet Union, 
but Panama denied that this was a prelude to establishing diplo- 
matic relations. In December Panama gave the Soviet airline 
Aeroflot permission to begin regular flights to Panama, but once 
again denied that it was planning to open formal diplomatic 
relations. 

Multilateral Relations 

Panama has long emphasized the role of multilateral forums and 
bodies in its foreign relations, using them to enhance its prestige, 
secure economic assistance, and marshall support for its dealings 
with the United States. In 1973 the UN Security Council held a 
meeting in Panama to discuss the canal issue, and the Panama 
Canal treaties were signed in a special ceremony at the OAS. 

Panama has been an active member of the OAS since its incep- 
tion. It repeatedly has used this forum to criticize United States 
policies, especially those regarding the canal, and to seek Latin 
American support for its positions. That this trend has continued 
was demonstrated by the 1987 OAS resolution criticizing United 
States interference in Panama's internal affairs. 

The UN provided Panama with a platform from which it was 
able to address a broader audience. In 1985 Panama's vice presi- 
dent, Jorge Illueca Sibauste, served as president of the UN General 
Assembly. Within the UN, Panama frequently adopted a position 
on economic matters similar to that of other small, Third World 
nations. On political matters, it generally took a position closer 
to that of the United States, but it did break with the United States 
over the Falkland/Malvinas Islands issue in 1982 and was openly 
critical of United States Central American policy. In both cases, 
Panama sponsored resolutions in the UN Security Council that were 
at variance with United States policy. Over time, the trend has 
been to move slowly away from the positions held by the United 
States and toward those of the Nonaligned Movement. 

Panama was an active member of the Nonaligned Movement 
and acted in it much as it did in the UN. Other multilateral organi- 
zations in which Panama maintained an active participation were 
the General Agreement on Tariffs and Trade and the United 
Nations Conference on Trade and Development. 

Dealings with international financial organizations and problems 
connected with Panama's debt formed a major part of Panama's 
foreign policy agenda. In 1987 Panama took part, with seven larger 
Latin American nations, in a major economic summit in Acapulco, 



214 



Government and Politics 



Mexico. Efforts to use this forum to win support in its conflicts 
with the United States were largely unsuccessful, but Panama did 
contribute to the discussion of the debt crisis and supported the 
group's resolutions, which were highly critical of Western economic 
policies. Panama has borrowed extensively from the World Bank 
(see Glossary), the IMF, and the Inter- American Development 
Bank, a practice that may be jeopardized by its dispute with the 
United States. Panama's 1985-87 agreement with the IMF has 
expired, and the World Bank has suspended payments on a major 
structural adjustment loan because of Panama's failure to comply 
with a mandated austerity program. 

Foreign Policy Decision Making 

Article 179 of Panama's Constitution gives the president, with 
the participation of the minister of foreign relations, the power to 
"direct foreign relations, to negotiate treaties and public conven- 
tions, which will then be submitted to the consideration of the Legis- 
lative Organ, and to accredit and receive diplomatic and consular 
agents." In practice, however, the president's role in foreign policy 
was circumscribed by several factors. The most significant was the 
dominant influence of the FDP and its commander. No major for- 
eign policy initiatives were possible without FDP approval. Torrijos 
began the practice, continued by Noriega, of direct military involve- 
ment in foreign policy matters without going through, or even neces- 
sarily consulting, the civilian political structure. The official party, 
the PRD, also played a role, both in selecting the foreign minister 
and in the Legislative Assembly, where it held an absolute majority. 
There, resolutions frequently were passed on matters of foreign 
policy. Although such resolutions lacked the force of law, their pas- 
sage complicated the policy process. 

The foreign ministry had a core of professional, career employees, 
but the post of foreign minister and most of the key ambassadorial 
appointments were filled by political appointees. The ministry itself 
played largely an administrative, rather than a decision-making, 
role in the policy process. Its authority was somewhat greater in 
commercial matters than in political matters. Internally, it was 
organized into a number of directorates for various world regions 
plus one for international organizations. In the past, various inter- 
ests groups, such as CONEP and university students, were able 
to exercise some influence over foreign policy, but growing inter- 
nal political polarization largely negated their influence. 

* * * 



215 



Panama: A Country Study 

The debate over the Panama Canal treaties generated a large 
body of literature on the canal and on United States-Panamanian 
relations, but little of this deals with internal Panamanian affairs. 
Panama's national politics remain among the least studied of any 
Latin American nation. Basic documents include the Constitution 
Politico, de la Republica de Panama de 1972: Reformada por los Ados Refor- 
matories de 1978 y por el Acto Constitutional de 1983 and the Codigo 
Electoral de la Republica de Panama y Normas Complementarias as well 
as the 1977 Panama Canal Treaty and the associated Treaty Concern- 
ing the Permanent Neutrality and Operation of the Panama Canal (for text 
of treaties, see Appendix B). A first-person account of the negotia- 
tion and ratification of the treaties is William J. Jorden's Panama 
Odyssey, while a more analytical study is provided by William L. 
Furlong and Margaret E. Scranton in The Dynamics of Foreign 
Policymaking. The best studies of internal Panamanian politics are 
those of Steve Ropp. Rapidly changing events have made his 1982 
book Panamanian Politics: From Guarded Nation to National Guard some- 
what dated, but his subsequent articles in Current History fill in some 
of the gaps. Also useful are Thomas John Bossert's "Panama" in 
Confronting Revolution, edited by Morris J. Blachman, William M. 
Leogrande, and Kenneth Sharpe, and the 1987 Report on Panama: 
Findings of the Study Group on United States -Panamanian Relations pub- 
lished by the Johns Hopkins University School of Advanced 
International Studies. Opposition views of recent events are avail- 
able in articles by Guillermo Sanchez Borbon and Ricardo Arias 
Calderon. The United States Congressional hearings on Panama 
held in 1986 and 1987 also provide valuable information, as does 
the annual "Political Risk Report: Panama," produced by Frost 
and Sullivan of New York. (For further information and complete 
citations, see Bibliography). 



216 



Chapter 5. National Security 



Cuna Indian mola design of a United States Air Force airplane 



ACCORDING TO the 1983 amended version of the 1972 Con- 
stitution of the Republic of Panama, the national defense and public 
security of the country are the responsibility of the Panama Defense 
Forces (Fuerzas de Defensa de Panama — FDP). Before the FDP 
was created in 1 983 , a paramilitary organization called the National 
Guard had handled national security functions. After the 1968 mili- 
tary coup that brought General Omar Torrijos Herrera to power, 
the National Guard became the dominant political institution in 
the country. This legacy of military involvement in politics con- 
tinued after Torrijos 's death in 1981 , even though the political sys- 
tem was ostensibly transformed from a military dictatorship into 
a civilian democracy, and the National Guard replaced by the FDP. 

Negotiation of the Panama Canal treaties during the late 1970s 
led to changes in Panama's national security system. When the Canal 
Zone was integrated into the republic, people began to think of their 
country as a single territorial entity. This changed attitude was 
reflected in the military segments of the National Guard, which 
moved to make the institution less a police force and more a true 
national army capable of defending the expanded national territory. 
The implementation agreements of the treaties referred to the "Pana- 
manian Armed Forces," rather than to "Panama's police force" 
or "Panama's paramilitary force," as had been done in the past. 
Transformation of the National Guard into a national army was 
accomplished in 1983, when legislation was passed creating the FDP. 

The treaties also stimulated creation of a national army by reduc- 
ing United States responsibility in Panama. Since the early 1900s, 
the armed forces of the United States had provided the primary 
defense of the Canal Zone and, in effect, of Panama itself. The 
treaties mandate cooperation and coordination in the protection 
and defense of the canal until December 31 , 1999, when the United 
States is to withdraw its troops. After 1999 Panama will be fully 
responsible for the operation, but the United States will continue 
to share responsibility for the defense of the canal. 

By the mid-1980s, the strength of the FDP was estimated at 
around 15,000, including the Ground Forces, composed of infan- 
try battalions and companies equivalent in size to a small army 
or United States infantry brigade. Other major segments were the 
Panamanian Air Force, National Navy, Police Forces, and National 
Guard. The FDP was theoretically administered through the Minis- 
try of Government and Justice; there was no ministry of defense. 



219 



Panama: A Country Study 

Internal security problems, however, grew in the 1980s. By 1987 
widespread concern over the lack of democratic institutions had 
generated major challenges to government authority. The integrity 
of the Panamanian system of justice was broadly questioned as well 
as the personal ethics of highly placed government officials. 
Newspapers in Panama and the United States reported widespread 
drug trafficking within the country and implicated the FDP. 
Panama was alleged to be both a transshipment point for the move- 
ment of drugs from South America to North America and a bank- 
ing haven for laundering funds. The volume of such activity was 
not documented, however. In response to a general strike and 
widespread public disturbances, the government declared a state 
of emergency (subsequently lifted) and temporarily suspended arti- 
cles of the Constitution guaranteeing basic rights such as freedom 
of speech and assembly. 

Historical Background 

On November 18, 1903, Secretary of State John Hay, represent- 
ing the United States, and Special Envoy Philippe Bunau-Varilla, 
representing the Republic of Panama, signed an agreement that 
became known as the Hay-Bunau-Varilla Treaty. According to 
Article I of that treaty, the United States guaranteed Panamanian 
independence (see The 1903 Treaty and Qualified Independence, 
ch. 1). With that kind of insurance, the rulers of the new republic 
did not need to be concerned about developing armed forces. 

When the country gained its independence, an oversized bat- 
talion of former Colombian troops under the command of General 
Esteban Huertas became the Panamanian army. Huertas and his 
soldiers had favored the independence movement and had switched 
their allegiance from Colombia to Panama. The general was named 
commander in chief of the small army and became one of Pana- 
ma's most prominent citizens; however, when he tried to give orders 
to the new republic's first president, Manuel Amador Guerrero, 
the general was forced into retirement, and the army was demobi- 
lized. Although Huertas failed in his attempt to use the armed force 
as a political instrument, he established a precedent for such 
attempts. 

To replace the disbanded army, the Corps of National Police 
was formed in December 1904 and for the next forty-nine years 
functioned as the country's only armed force. The government 
decree establishing the National Police authorized a force of 700, 
and the tiny provincial (formerly Colombian) police force that had 
been operating since independence was incorporated into the new 
organization. The corps was deployed territorially, and by 1908 



220 



National Security 



its overall strength had risen to 1,000. The heaviest concentration 
of forces was (and has continued to be) in the Panama City area. 
For many years strength fluctuated, but generally remained close 
to 1,000 depending on budgetary allowances. There were, however, 
massive turnovers of personnel as new political regimes came to 
power and used positions in the police corps as patronage plums. 
By the 1940s some stability had been achieved, but it was not until 
the presidency of Jose Antonio Remon in the early 1950s that insti- 
tutionalization of the corps took place, and the National Police was 
designated the National Guard. 

The emergence of the National Guard and its successor institu- 
tion, the FDP, as powerful actors in domestic politics is inextrica- 
bly intertwined with the professional military career of Colonel 
Remon. Born in 1908 to a middle-class family, he studied at the 
then prestigious National Institute, which served as the training 
ground for sons of wealthy families. Upon graduation, he received 
a scholarship to attend the Mexican Military Academy, and he 
graduated from there in 1931. Because few Panamanian police 
officers at that time had academy training of any sort, he entered 
the National Police as a captain. By 1947 he had become comman- 
dant of police. 

Remon 's ability to convert the police into an important politi- 
cal force resulted not only from his personal and professional skills 
but also from the nature of Panamanian politics during the late 
1940s and early 1950s (see The National Guard in Ascendance, 
ch. 1). As a military academy graduate, Remon realized the limi- 
tations of a police force both as an organization commanding 
national respect and as an instrument for wielding political power. 
In 1953, therefore, he created the National Guard. 

During the 1950s and 1960s, the National Guard was milita- 
rized and professionalized, largely with United States aid under 
the Mutual Security Act. This trend away from the police roots 
and toward increased military status accelerated during the 1960s, 
as a result of the perceived threat from Fidel Castro's Cuba. More 
Panamanian officers and enlisted personnel were trained at United 
States facilities in the Canal Zone, and military assistance increased 
dramatically during the 1960s. 

Remon was assassinated in 1955, but the legacy of militariza- 
tion that he passed on to his successor, General Bolivar Vallarino, 
had culminated by the late 1960s in the formation of a National 
Guard that was increasingly sure of its professional identity and 
no longer averse to becoming involved in politics. Total force 
strength reached 5,000 with an officer corps of 465; an increasing 
number of officers had received academy training. Although police 



221 



Panama: A Country Study 



work still predominated and many officers were promoted from 
the ranks of "street cops," middle-ranking officers such as Torrijos 
were increasingly drawn from the small but growing band of acad- 
emy graduates. Within the National Guard, there were more posi- 
tions requiring officers with formal military training. For instance, 
a special public-order force was created in 1959, in response to an 
amphibious invasion launched from Cuba by a small group of 
armed Panamanians. New rifle companies were formed during this 
same period, the prototypes of the contemporary FDP combat bat- 
talions formed in the 1980s. 

In spite of all these changes in Panama's military institution, 
it was not until the coup of 1968 and the political ascendancy of 
Torrijos that the National Guard began to make a lasting imprint 
on the socioeconomic structure of the country. With the death of 
Remon in 1955, the role of the armed forces in mobilizing the lower 
classes against the urban commercial elite had been curtailed, and 
politics were once again controlled by the oligarchy. Torrijos 
changed that, introducing a populist brand of politics as well as 
further expanding and professionalizing the National Guard (see 
The Government of Torrijos and the National Guard, ch. 1). 

During the Torrijos years (1968-81), rank structure within the 
National Guard allowed control by a single military leader in the 
tradition of Remon and Vallarino. This phenomenon of a single 
institutional leader may have resulted because the police and 
National Guard had traditionally been institutions with low esteem 
and few links to the national political system. Regardless of the 
reason, Torrijos was the only general, the positions on the general 
staff being occupied by lieutenant colonels. Torrijos controlled the 
National Guard through a highly centralized administrative struc- 
ture. Although there were by now a number of light infantry com- 
panies and other units with some combat potential, Torrijos 
managed to exercise independent control over all of the infantry 
companies and all officer assignments. During the Torrijos years, 
the National Guard was still small enough for Torrijos to main- 
tain a close and personal working relationship not only with mem- 
bers of the officer corps but also with enlisted personnel. 

From 1968 until Torrijos's death in 1981, the National Guard 
continued the expansion, militarization, and professionalization that 
had begun under Remon in the late 1940s. Furthermore, dramatic 
changes took place in officer recruitment and training. During the 
1950s and 1960s, most academy-trained officers entering the 
National Guard were members of the lower-middle class who had 
received their military training in Mexico and other countries in 
Central America; Torrijos himself was schooled in El Salvador. 



222 



Panama: A Country Study 

During the 1970s, more junior officers attended South American 
academies, such as those in Brazil, Peru, Chile, Venezuela, and 
Argentina. 

Since World War II, Panama had maintained close security ties 
to the United States, and that country had assisted in the develop- 
ment of Panama's military institutions. Panama had been one of 
the twenty original signatories to the 1945 Act of Chapultepec, bind- 
ing the countries of Latin America and the United States to a mutual 
defense agreement by which all were to respond to an external attack 
against any one. Two years later, most of the same countries 
(including Panama) signed the Inter- American Treaty of Reciprocal 
Assistance (Rio Treaty), which also provided for mutual defense 
against external attack, but further bound the signers to peaceful 
arbitration of disputes arising among member states. In 1948 the 
charter of the Organization of American States (OAS) incorporated 
the provisions of the Rio Treaty. Panama also signed the Treaty 
for the Prohibition of Nuclear Weapons in Latin American 
(Tlatelolco Treaty) in 1967, an agreement that prohibited the 
deployment of nuclear weapons in Latin America. A bilateral mili- 
tary assistance pact existed between the United States and Panama 
and, under the Panama Canal treaties, the two countries pledged 
themselves to the joint defense of the Panama Canal. 

Missions and Organization of the Defense Forces 

On September 29, 1983, a new law— Law 20— created the FDP 
as the successor institution to the National Guard. The law simul- 
taneously repealed all previous legislation relating to the organi- 
zation, mission, and functions of the Panamanian armed forces, 
including Law 44 of December 23, 1953, and Law 50 of Novem- 
ber 30, 1958. Opposition parties strongly criticized the new law, 
claiming that it "implies the militarization of national life, con- 
verts Panama into a police state, makes the members of the armed 
forces privileged citizens, and gives the commander of the National 
Guard authoritarian and totalitarian power." However, the Defense 
Forces' commander in chief, General Manuel Antonio Noriega 
Moreno, claimed that the change in the law was necessary in order 
to confront the deteriorating security situation in Central America 
and to prepare the military for its growing role in defending the 
Panama Canal. 

The functions of the FDP stated in the organic law were very 
broad, giving it an increasing role and bringing other organiza- 
tions under its control. Major functions included protecting the 
life and property of Panamanians and foreigners living in Panama; 
cooperating with civilian authorities to guarantee individual rights 



224 



National Security 



in the republic; preventing crime; defending the Panama Canal 
in cooperation with the United States as specified under terms of 
the treaties; regulating traffic; and cooperating with civilian authori- 
ties in the areas of drug trafficking, contraband, and illegal immi- 
gration. 

The new organizational structure established by the 1983 law 
created a "public force" that brought a broad array of institutions 
under a single operational command. The FDP encompassed the 
General Staff, Military Regions and Zones, Ground Forces, Pana- 
manian Air Force, National Navy, Police Forces, and National 
Guard. In addition, the FDP would include any institution created 
in the future that might perform functions similar to the institu- 
tions listed above. One effect of these changes was to reduce the 
National Guard to only one of a number of co-equal military insti- 
tutions within the FDP structure that was bound together, as the 
Guard had been, through a single command and commander in 
chief (see fig. 10). 

Although the Constitution designates the president of the republic 
as the supreme chief of the FDP, this role is largely symbolic. The 
law specifies that he "will exercise his command by means of orders, 
instructions, resolutions, and regulations which will be transmitted 
through the commander in chief." The FDP enjoyed administra- 
tive autonomy that in effect allowed it to determine its own inter- 
nal procedures in regard to personnel policies, disciplinary sanctions 
against FDP members, organizations created to further the social 
welfare of members, and recommendations for the defense budget. 

Since there was no role for civilian officials in determining FDP 
policy and the organization was under a single military command, 
the law itself provided the only parameters for the commander in 
chief s role. The duties of the commander in chief were very broad 
and sometimes simply restated duties assigned to the FDP as a 
whole. The commander in chief was charged, for example, with 
adopting "measures needed to guarantee the security of inhabitants 
and their property and the preservation of the public order and 
social peace." The commander in chief was also required to keep 
the president abreast of any developments in the area of national 
security and to participate in all modifications of the law that would 
affect the FDP. 

Within the FDP, the commander in chief was responsible for 
promotions, transfers, and awarding military decorations. He 
supervised disciplinary measures and was to improve "the moral 
and material condition of the institution as well as the cultural and 
intellectual condition of its members." The president of the republic 
could replace the FDP's top officer in case of retirement, death, 



225 



Panama: A Country Study 



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226 



National Security 



disobedience of orders that were supported by constitutional pro- 
visions, and personal incapacity. 

The General Staff 

Article 36 of the 1983 law stated that "The commander in chief 
of the Defense Forces . . . will have an advisory body comprised 
of officers with the rank of general, colonel, and lieutenant colonel." 
This advisory body was called the General Staff, and its members 
were appointed by the commander in chief. The primary task 
assigned to the General Staff was to help the commander in chief 
with planning in the areas of military operations, training, and 
administration. 

The structure of the General Staff of the FDP was inherited from 
its predecessor, the National Guard. The General Staff was struc- 
tured in approximately the same way as a United States Army staff 
at division level or above. The basic similarity was in the section 
breakdown, that is, G-l, Personnel; G-2, Intelligence; G-3, Opera- 
tions; G-4, Logistics; and G-5, Civic Action. There were a chief 
of staff and two deputy chiefs of staff, who obviously occupied 
positions of extreme importance within this highly centralized com- 
mand structure. In June 1987, the position of vice chief of staff 
was spilt into two new positions: the deputy chief of staff for ground 
matters, who served concurrently as G-3, and the deputy chief of 
staff for aviation matters, who also occupied the G-5 position. The 
chief of staff, deputy chiefs of staff, and assistant chiefs were all 
full colonels. 

In addition to the General Staff, there were two other structures 
at the level of the general command. There was a Special General 
Staff that incorporated the War Materiel Services, Military Health 
Battalion, Communications Section, General Services, Chaplaincy, 
and Public Relations. There was also a Personal General Staff sup- 
plying advice to the commander in chief on an "as needed" basis. 
The Personal General Staff included five sections: Economic Affairs, 
Judicial Affairs, International Affairs, Political Affairs, and National 
Security Affairs. The Personal General Staff seemed to institution- 
alize the involvement of the FDP in a wide range of civilian policy 
matters — an involvement that can be traced back to the days when 
Torrijos commanded the National Guard. Noriega commented that 
the new staff structure initiated with passage of the 1983 law fur- 
thered the goal of "performing our mission more effectively and 
realistically in conformance with the geopolitical situation from which 
Panama cannot escape . . . ." and pointed to "the formation of a 
new Personal General Staff of the Commander . . . ." This staff 
functioned in essence as an in-house National Security Council. 



227 



Panama: A Country Study 
Military Zones 

Organizational descriptions of the Defense Forces included a 
structure of four military regions within which the military zones 
operated (see fig. 11). In 1987, however, these regions existed only 
on paper. Noriega had referred to the military regions as areas 
"which constitute the strategic triangles of national security," but 
their eventual activation was thought to be linked to the further 
elaboration and expansion of Panama's four combat battalions. 

During the 1950s and 1960s, when the National Guard was still 
primarily a police force, the military zones together with the General 
Staff were the heart of the institution. Commanders of the ten mili- 
tary zones into which the country was then divided were powerful 
figures who often served as de facto provincial governors. Usually 
holding the rank of major, they could expect their next assignment 
to be command of another zone or a position on the General Staff, 
then largely composed of lieutenant colonels. When the National 
Guard gave way to the FDP, the zone commanders' role remained 
significant even though the 1983 law made no specific provision 
for military zones; it simply stated, "The internal regulations of 
the Defense Forces . . . can divide the territory . . . into regions, 
military zones, detachments, districts, or any other form of divi- 
sion suitable for the better exercise of institutional functions 

In the mid-1980s, zone commanders continued to be regarded 
as the most powerful individuals in the provinces, surpassing by 
far the importance of the provincial governors. They controlled 
political, military, and economic affairs in the zones, and they rather 
than the governors settled labor disputes and strikes. Within the 
FDP, the zone commanders, generally holding the rank of major, 
were also significant. They were personally selected by the FDP 
commander and were directly responsible to him. Military units 
headquartered within the zones, including the emergent combat 
battalions, appeared to be fully integrated into the zones and thus 
firmly under the control of the zone commanders. The Fifth Mili- 
tary Zone, for example, was the home base of the Peace Battalion, 
whose commander reported directly to the zone commander. 

There were twelve military zones in 1987, the most recent hav- 
ing been created in 1986 in the Comarca de San Bias (see fig. 1). 
This area had traditionally exercised considerable territorial auton- 
omy as the home of the Cuna Indians (see Indians, ch. 2). Their 
traditional suspicion of the Guard (and their attempt to insulate 
themselves from Hispanic politico-military influence) was partially 
overcome in the 1980s, when more Indians entered the military, 
and as a result of increased encroachment on their territory by 



228 



National Security 



Colombians and settlers from other parts of Panama. Neverthe- 
less, the creation of the Twelfth Military Zone became acceptable 
to the Cuna only after lengthy FDP lobbying and the granting of 
various concessions. 

Ground Forces 

Panama's Ground Forces, officially the Ground Forces for Defense 
and National Security (Fuerzas Terrestres de Defensa y Seguridad 
Nacional), constituted a critical element within the FDP in the late 
1980s. Their primary mission appeared to be to develop the capa- 
bility to defend the canal after the year 2000. However, these forces 
had developed historically in response to other needs. Before the 
1931 coup d'etat that removed President Florencio H. Arosemena, 
the United States had frequentiy intervened militarily to oversee elec- 
tions and quell riots (see United States Intervention and Strained 
Relations, ch. 1). The United States' decision not to use troops in 
1931 to prevent the coup precipitated a change in the Panamanian 
military. It was now clearly up to the national police to guarantee 
internal security through the formation of a troop contingent. 

Proposals were made to create a militarily trained police reserve 
unit of battalion strength to respond quickly to serious disorders, 
but political fears and budgetary limitations prevented action on 
the proposals. Renewed efforts through the years met with the same 
lack of success. The 1959 amphibious landing of Panamanian dis- 
sidents demonstrated that the National Guard, which was still 
primarily a police organization, lacked the training and the capa- 
bility to repulse even a small-scale attack. Plans were then made 
to create a Public Order Company (Compama de Orden Publico) 
that could serve as a field force as well as a police reserve. 

A police detachment stationed at Panama Viejo (Old Panama, 
a suburb of Panama City) was used as a cadre in forming the new 
Public Order Company, which was to quell public disturbances 
and rebellions; to assist on special occasions, such as sporting events, 
parades, and ceremonies; to maintain order during natural disas- 
ters; to accomplish rescues in the jungles and mountains and at 
sea; to furnish raiding parties for police actions; and to act by virtue 
of its existence as a deterrent to social disorder. Many of the com- 
pany's original personnel were sent for special training to United 
States Army schools in the Canal Zone. 

The Public Order Company was the precursor of the eight infan- 
try companies (compamas de infantena) that in the late 1980s constituted 
the major portion of Panama's Ground Forces. These companies 
had been established individually as necessary to perform a wide 
variety of tasks in addition to those mentioned above. 



229 



Panama: A Country Study 



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230 



National Security 



The eight infantry companies, sometimes referred to as combat 
companies {compamas de combate) or rifle companies {compamas de 
fusileros), were generally patterned on the standard infantry rifle 
company of the United States Army, although the Panamanians 
did not have the wide range of equipment available to their United 
States counterparts. The infantry companies were usually com- 
manded by captains who had lieutenants as executive officers and 
platoon leaders. Squads were led by sergeants. Directly subordinate 
to the office of the commander (comandancia) , the infantry compa- 
nies were deployed at the discretion of the commander in chief. 
Although they had on occasion been used as quick-reaction, antiriot 
forces, the establishment of a special unit within the Police Forces 
(the First Public Order Company — Doberman) had preempted their 
use for such purposes. The strength of the infantry companies was 
estimated to average 200 personnel each. As of the mid-1980s, the 
FDP had sixteen V- 1 50 and twelve to thirteen V-300 armored per- 
sonnel carriers. 

Infantry units were traditionally garrisoned within a thirty- 
kilometer radius of Panama City, with the exception of one rifle 
company at David and two at Omar Torrijos Military Base (for- 
merly Rio Hato). This deployment changed, however, with the 
creation of new combat battalions. In the late 1980s, the First 
Infantry Company, an airmobile company called the Tigres, was 
stationed at Tinajitas. The Second Infantry Company (Pumas) 
guarded General Omar Torrijos International Airport (more com- 
monly known as Tocumen International Airport). The Third Infan- 
try Company (Diablos Rojos) was located in David, the capital of 
Chiriqui Province, near the Costa Rican border. The Fourth 
Infantry Company (Urraca) was stationed at the Central Head- 
quarters in Panama City to protect the General Staff and coman- 
dancia. The Fifth Military Police Company (Victoriano Lorenzo) 
was headquartered at Fort Amador in the canal area. The Sixth 
Infantry Company (Expedicionaria) and Seventh Infantry com- 
pany (Macho del Monte) were headquartered at Omar Torrijos 
Military Base; these two companies, which controlled some of the 
country's light armored vehicles, once in essence represented Tor- 
rijos' s private army. Finally, the Eighth Military Police Company 
was stationed at Fort Espinar on the Atlantic side of the isthmus. 

Another component of the Ground Forces was the Cavalry 
Squadron (Escuadron de Caballerfa), stationed at Panama Viejo. 
Although primarily a ceremonial unit, it was called upon to per- 
form crowd-control duties when situations warranted. Cavalrymen 
assumed routine police duties when not employed in their mounted 
roles. The Cavalry Squadron has a long and colorful history. A 



231 



Panama: A Country Study 

mounted unit in the national police force dates back to the early 
days of the republic, when a frontier atmosphere prevailed and 
mounted troopers pursued cattle rustlers and other bandits. 
Through the years the unit underwent various reorganizations and 
changes in deployment, eventually leaving its rural posts for Panama 
City. Despite its name, the mounted unit in the mid-1980s bore 
little organizational resemblance to the old-time, battalion-sized 
cavalry squadron. The unit was actually similar to an infantry com- 
pany in that the squadron commander was a captain, his execu- 
tive officer was a lieutenant, and the platoons and squads were led 
by lieutenants and sergeants, respectively. 

The new mission assumed by the armed forces in the 1980s — 
defense of the canal — prompted the creation of four new combat 
battalions. The need for such battalions was premised on the belief 
that defense of the canal until the year 2000 and thereafter required 
the ability to defend not only the immediate environs of the water- 
way but also the various approaches to it. Fearing that conflicts else- 
where in Central America might spill over into Panama, the nation 
wanted to protect its borders with Colombia and Costa Rica. Of 
the four battalions envisioned (Battalion 2000, Peace Battalion, 
Cemaco Battalion, and Pedro Prestan Battalion), Battalion 2000 was 
by far the most fully developed by the mid-1980s. It was headquar- 
tered at Fort Cimarron and commanded by a major who had a cap- 
tain as his chief executive officer. The heart of Battalion 2000 's 
combat potential consisted of an airmobile company, an airborne 
company, a mechanized company, and an infantry company; the 
First Rifle Company at Tinajitas provided fire support. The Peace 
Battalion, commanded by a captain, was headquartered in the town 
of Rio Sereno near the Costa Rican border. In theory, the Cemaco 
Battalion, also commanded by a captain, was to be headquartered 
in Darien Province at La Palma near the Colombian border. 
Nevertheless, as of late 1987 its status was uncertain. It appeared 
to be only a company- sized element despite its designation as a bat- 
talion, and its actual location had not been finalized. When estab- 
lished, the Pedro Prestan Battalion was to be headquartered in 
Corona. In late 1987, it had not yet taken shape, however. 

Also attached to the Ground Forces were a number of battal- 
ions supplying support services: the Military Police Battalion 
(Batallon de Policfa Militar), composed of the Fifth and Eighth Mili- 
tary Police Companies; the Military Health Battalion (Batallon de 
Salud Militar); the Transport Battalion (Batallon de Transporte 
y Mantenimiento); and the Military Engineering Battalion (Batallon 
de Ingeneria Militar). The Military Health Battalion was com- 
manded by a captain and the others by majors. 



232 



National Security 



Panamanian Air Force and National Navy 

Before conversion of the National Guard into the FDP, the 
Panamanian military did not have separate service branches. Even 
in 1987, the six groups into which the FDP was divided (Ground 
Forces, Panamanian Air Force, National Navy, Police Forces, 
National Guard, and Military Zones) were referred to as "enti- 
ties" (entidades) rather than service branches. Prior to 1983, the 
air force and navy were under the direct jurisdiction of the G-3 
(Operations). Although not granted autonomy from the General 
Staff by the 1983 law, they seemed to have assumed more of a 
separate identity in the late 1980s. 

Establishment of the Panamanian air capability came in 1964, 
when a Cessna 185 airplane was purchased from the United States. 
When Torrijos became commander in chief, he began building up 
the air arm, officially establishing the Panamanian Air Force 
(Fuerza Aerea Panamena) in January 1970, in recognition of not 
only its military utility but also its political potential. Airplanes and 
later helicopters allowed Torrijos to tour outlying areas of the coun- 
try, areas where he could establish a political base that could neu- 
tralize the influence of historically powerful urban groups. The first 
officers to enter the air force were mostly civilian pilots and thus 
did not really constitute an officer corps as such. Also, there was 
little opportunity for an independent air force identity to emerge 
because pilots were regularly rotated to other positions within the 
National Guard, a practice that still prevailed in the FDP in the 
late 1980s. The most significant development affecting the air force 
during the Torrijos years, then, was not the development of an 
independent service identity, but the rapid growth of the air arm. 
There were only twenty-three officer pilots in 1969, but by 1978 
there were sixty. 

Although in 1987 the air force did not have any combat aircraft, 
there had been a steady buildup in other equipment, particularly 
helicopters. As of 1987, regular aircraft included three CASA 
C-212s, one DHC-3 Otter, two DHC-6 Twin Otters, one Short 
Skyvan, one Islander, one Boeing 727, and two Cessnas. In addi- 
tion, there were nine Bell and six UH helicopters and one Super 
Puma. Personnel and airplanes were primarily based at the Tocu- 
men Air Base, which is collocated with Tocumen International Air- 
port near Panama City, and at Albrook Air Force Base in the canal 
area. 

Panama's navy (officially, the National Navy — Marina Nacional) 
was formed at approximately the same time as the air force ( 1 964) . 
Known at that time as the Department of Marine Operations 



233 



Panama: A Country Study 

(Departamento de Operaciones Marinas), it was a small organi- 
zation involved primarily in coastal patrol operations under the 
direction of the G-3. In the late 1980s, the navy was equipped with 
two large rough- water patrol craft, two utility coastal patrol boats, 
about five small patrol and harbor craft, and three or four former 
United States Navy amphibious landing ships. The two large craft 
were the GC10 Panquiaco and the GC 1 1 Ligia Elena, both constructed 
by Vosper Thornycroft in Portsmouth, England, in 1970. Each 
measured about 30 meters in length and was armed with 2 20mm 
guns; the manning level called for 23 officers and enlisted men. 
The 2 utility patrol craft each measured about 19 meters in length, 
mounted a pair of 12.7mm machineguns, and carried a comple- 
ment of 10 people. The craft had been transferred to Panama from 
the United States Coast Guard in the mid-1960s. Two of the smaller 
coastal patrol craft were twelve-meter boats transferred to Panama 
from the United States Navy under the Military Assistance Pro- 
gram in the early 1960s. Each mounted a single 12.7mm machine- 
gun and carried a crew of 4 enlisted personnel. 

Because of the age and the limited capabilities of many of their 
naval craft, Panamanian officials sought to purchase more modern 
vessels that would allow the navy to defend the canal approaches 
and also enhance its coastal patrol capabilities. In the 1980s Panama 
took delivery of two swift ships, the MN GC-201 Comandante Tor- 
rijos and MN GC-202 Presidente Porras, which were constructed in 
the United States. 

With this continued increase in the navy's vessels, there has been 
a concomitant expansion in personnel. In 1983 the navy moved to 
new headquarters at Fort Amador at the Pacific terminus of the canal. 
The commanding officer in the mid-1980s was a navy commander. 

Police Forces 

The Police Forces (Fuerzas de Policia) in the mid-1980s included 
a number of major units and several smaller ones performing 
relatively minor functions. Most important was the National 
Department of Investigations (Departamento Nacional de Investiga- 
ciones — DENI), which has historically been viewed by many 
Panamanians as a kind of secret police. For most of its history, 
Panama has had organizations similar to the DENI. The under- 
cover police began with the decree-law, issued by President Jose 
D. Obaldfa in 1909, establishing a ten-man section in the Panama 
City Police and a five-man section in Colon to engage exclusively 
in undercover police investigations. In effect, Obaldia created a 
detective organization supervised by the commander of the National 
Police. 



234 



National Security 



In 1941, during the presidency of Arnulfo Arias Madrid, the 
enlarged detective agency became the National Secret Police and 
was removed from the jurisdiction of the police commander, 
although it remained under the Ministry of Government and 
Justice. According to the decree establishing it, the National Secret 
Police was to be the investigative agency dealing with infractions 
of the law as well as with conspiracies against the state or against 
national security. 

In May 1960, President Ernesto de la Guardia, with the approval 
of the cabinet and the Permanent Legislative Commission, issued 
a decree-law that created the DENI to replace the National Secret 
Police. The new agency was removed from the Ministry of Govern- 
ment and Justice and placed in the Public Ministry under the direc- 
tion of the attorney general. DENI powers were carefully delineated 
in the 1960 law; primarily an investigatory agency, it acquired 
broader authority that made it the Panamanian counterpart of the 
United States Federal Bureau of Investigation. Besides investigat- 
ing crime, DENI was to maintain surveillance on known political 
extremists and potential subversives. DENI agents were authorized 
to maintain surveillance of hotels, pensions, and boarding houses 
in Panamanian cities in order to follow the movements of tran- 
sients who might be potential violators of the law. The agency was 
also charged with administering a national identity bureau and with 
keeping records of all criminals and criminal activities. A finger- 
print file was established by recording the prints of each citizen 
who applied for the national identity card (ceduld). 

DENI became a member of the International Organization of 
Criminal Police (Interpol). Sometime after the coup d'etat of 1968, 
it was subordinated to the G-2 of the National Guard's General 
Staff. In the mid-1980s, the DENI was commanded by a major 
and headquartered in Ancon near Panama City. The overall 
strength of this organization and location of its agents were not 
publicized; however, it was generally assumed that Panama City, 
Colon, and David were its main areas of activity. 

The Police Forces also included the Traffic Police (Direccion 
Nacional de Transito Terrestre), which was founded as a separate 
entity in 1969. Headquartered in Panama City, the Traffic Police 
regulated and controlled traffic throughout the country. Units were 
stationed in the cities and suburbs as well as on the back roads and 
highways, including the Pan-American Highway (see fig. 8). In per- 
forming its countrywide duties, the Traffic Police coordinated with 
other FDP personnel in the posts and stations of eleven of the twelve 
military zones; coordination was not possible in the Twelfth Military 
Zone, located in the Comarca de San Bias, because of the lack of 



235 



Panama: A Country Study 

roads. Responsibilities of the Traffic Police included issuing, renew- 
ing, and revoking drivers' licenses and vehicle registrations; 
investigating accidents and infractions of the vehicle laws; inspecting 
vehicles for safety hazards; and developing training programs for 
safe driving. In the late 1980s, the force was commanded by a 
major. 

The Police Forces also included small police units called the 
Tourism Police (Policia de Turismo) and Community Police (Policfa 
Comunitaria), both commanded by lieutenants. The Immigration 
Department and the First Public Order Company (Doberman) first 
came under the control of the Police Forces in 1983. The Immigra- 
tion Department was staffed by civilians but was fully integrated 
into the FDP; its head reported directly to the FDP commander. 
The First Public Order Company, commanded by a captain, was 
charged with riot control and was the primary instrument used for 
this purpose in the 1980s. 

National Guard 

The last of the six major entities making up the Defense Forces 
was the National Guard (Guardia Nacional). As reconstituted, the 
National Guard was scarcely a shadow of its former self. As of late 
1987, it had neither a commander nor a staff element and func- 
tioned primarily as a paper entity encompassing the Presidential 
Guard (Guardia Presidencial), Penitentiary Guard (Guardia Peni- 
tenciaria), Forest Guard (Guardia Forestal), Port Guard (Guardia 
Portuaria), Customs Guard (Guardia Aduanera), and Railroad 
Guard (Guardia Ferroviaria). The Presidential Guard was a spe- 
cially selected unit charged with guarding the president and the 
presidential palace. The unit, which was quartered on the palace 
grounds, was believed to be similar to an infantry company in 
organization; although used as a ceremonial honor guard, its per- 
sonnel were also trained in the use of weapons and in security tech- 
niques. On parade or when mustered to greet foreign dignitaries, 
the Presidential Guard presented an impressive appearance in 
tailored white uniforms, white helmets, boots with white laces, and 
white belts and rifle slings. The Presidential Guard wore a variety 
of other uniforms as well, including a dark blue uniform with black 
cap and a solid gray uniform with white helmet and white belt. 
The unit was commanded by a major or a captain who answered 
directly to the comandancia. 

Other small units of the National Guard protected specific areas 
or facilities. The Port Guard, Railroad Guard, and Forest Guard 
all were formed to handle functions and responsibilities turned over 
to Panama by the 1978 treaties. The Forest Guard, for example, 



236 



National Security 



dealt with the increasingly serious problem of deforestation in the 
basin drained by the canal. 

Administration and Operations of the Defense Forces 
Manpower 

Service in the FDP and its predecessor organizations had been 
voluntary since Panama gained its independence, but a law pro- 
vided for conscription if necessary. If there were a perceived threat 
to national sovereignty, the Defense Forces were charged with 
managing conscription. Naturalized citizens were exempted from 
participation in cases where they would have to fight against their 
country of origin. (As of the mid-1980s, however, no emergency 
since independence had necessitated activation of the law.) 

Government officials reported through the years that there had 
always been more recruits for the Defense Forces than available 
spaces. Even the possibility of increased manning levels to meet 
additional requirements under the Panama Canal treaties did not 
seem to exhaust the pool of recruits. In the mid-1980s, Panamani- 
ans aspiring to military service generally reported to Omar Torrijos 
Military Base at Rio Hato, where they took a series of physical 
and mental examinations. Those accepted were issued uniforms 
and received some basic training before being sent to the Military 
Training Center (Centro de Instruccion Militar — CIM) at Fort 
Cimarron. There was no set schedule for basic training courses, 
but they occurred two to three times each year. All Panamanians 
who enjoyed "... their civilian and political rights, who have not 
been sentenced for crimes against property, or sanctioned by the 
judicial branch with a sentence depriving them of freedom for com- 
mitting a crime against the public administration ..." could apply 
for admission to the Defense Forces. 

The commander in chief made all promotions and used the fol- 
lowing criteria to determine whether a promotion was merited: 
"(1) Verification of service rendered in the lower rank and proof 
of seniority, (2) Exhibition of optimal physical condition . . ., 
(3) Demonstration of a positive moral attitude . . ., and (4) Exhi- 
bition of intellectual attitude and competence . . . . " If a mem- 
ber of the Defense Forces were found guilty of insubordination or 
some other violation of military discipline, the right to promotion 
could be suspended for up to three years. In October 1985, Noriega 
promoted the largest number of officers and enlisted personnel ever 
promoted at one time in the history of the armed forces (some 
1,200). This occurred as a result of both the rapid expansion of 
the Defense Forces and the anticipated need for more senior officers 



237 



Panama: A Country Study 

and enlisted men as the year 2000 approached. Noriega's action 
further altered the rank structure by creating more high-level officer 
billets and strengthened his position within the Defense Forces. 

Statistics were not maintained on the ethnic and racial back- 
grounds of Defense Forces personnel, but there was no apparent 
discrimination. In fact, since the National Police and its successor 
institutions had been among the few bureaucratic organizations 
in Panama not to discriminate on the basis of race, many black 
Panamanians found their way into military service. Enlisted per- 
sonnel historically came mostly from the urban transit area, since 
the National Police served primarily as policemen in that area. After 
the creation of new infantry units during the 1960s and 1970s, there 
has been some indication that recruitment shifted to rural areas. 
Most officers had traditionally come from the urban lower-middle 
class, but increasing numbers were drawn from the rural middle 
and lower classes in the 1950s and 1960s. 

Although there had always been a few women in the Panama- 
nian armed forces, their numbers greatly increased in the 1980s. 
Part of this increase resulted from the creation of the FDP in 1983, 
when women in bureaucracies such as the Immigration Depart- 
ment were brought under the armed forces. However, it was also 
a reflection of changing policy and the military five-year plan imple- 
mented in the early 1980s. This plan called for the eventual crea- 
tion of a separate administrative office for the women's component 
of the armed forces known as the Female Force (Fuerza Feminina). 
As of the mid-1980s, there were 1,824 women on active duty. In 
1986 the School for Women's Training (Escuela de Formacion 
Feminina) was established with a female captain as its commander. 
The first graduating class of twenty had received twelve weeks of 
instruction in a variety of military subjects. 

Article 24 of the September 1983 Law 20 on the Defense Forces 
of the Republic of Panama states that the professional classifica- 
tion of military ranks within the FDP will be as follows: "(1) general 
of the forces, (2) corps general, (3) division general, (4) brigadier 
general, (5) colonel, (6) lieutenant colonel, (7) major, (8) captain, 
(9) lieutenant, (10) second lieutenant, (11) first sergeant, (12) second 
sergeant, (13) first corporal, (14) second corporal, (15) agent, 
(16) aid, and (17) orderly. Posts in the military ranks mentioned 
above will be filled in accordance with institutional needs." The 
commander in chief is traditionally the only active-duty officer to 
hold the rank of general. The rank of general came into use in the 
mid-1960s with Vallarino. Previously, colonel was the highest rank 
except for Remon's posthumous promotion to general, approved 
by the National Assembly after his assassination. In the late 1980s, 



238 



National Security 



the FDP's commander, General Noriega, held the four-star general 
rank (see fig. 12). 

The most common uniforms in the mid-1980s were either green 
fatigue or khaki-colored short-sleeved shirts and trousers. Officers 
sometimes wore short-sleeved khaki shirts with dark green trou- 
sers or various (white or dark green) dress uniforms. Both the fatigue 
uniforms and khaki uniforms also had long-sleeved versions. Head- 
gear varied, including a variety of helmets or helmet liners, berets 
of various colors, the stiff-sided visored fatigue cap, and the visored 
felt garrison caps similar to those worn by United States Army 
officers. Field-grade officers and the one general officer wore gold 
braid on their visored caps. Combat boots were the most common 
footwear, but officers frequently wore low-quarter shoes. Officer 
rank insignia consisted of gold bars or stars. The noncommissioned 
officer (NCO) ranks were designated by chevrons similar to those 
worn by some NCOs in the United States Army. Distinctive unit 
shoulder patches were worn by all ranks on the right shoulder of 
their uniforms (see fig. 13). On the left shoulder, all ranks wore 
the familiar blue, white, and red shield of the FDP showing crossed 
rifles bisected by an upright saber. 

Training 

Until the 1950s, systematic training had been at best sporadic and 
at worst nonexistent. During the construction of the canal, United 
States instructors in police methods were frequently hired, but none 
stayed more than a few months, and the turnover hurt the already 
inefficient police force. In 1917 Albert R. Lamb was hired as an 
instructor for the National Police, and within two years he had been 
promoted to the post of inspector general. Even after a Panamani- 
an was named commander in 1924, Lamb remained as an inspec- 
tor and continued to exert an important influence on the police. He 
was credited with having created a relatively efficient force, but dis- 
cipline, training, and efficiency declined after he left in 1927. 

Police officials during the 1930s and 1940s periodically recom- 
mended the establishment of a police training center, but lack of 
funds always prevented action on such recommendations. In 1946 
the National Assembly created the Police School (Escuela de Policfa), 
but even after that decree and even with Remon as commander, 
the police had difficulties securing sufficient funds to operate a school. 
As president, Remon was instrumental in arranging for a Venezuelan 
military mission to advise and assist in establishing the National 
Guard School (Escuela de Formacion de Guardias Nacionales), fore- 
runner of the present-day CIM and the Police Training Academy 
(Academia de Capacitacion Policial — ACAPOL). 



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National Security 



Under the leadership of General Torrijos, training for both officers 
and enlisted men improved considerably. In the 1970s, officer train- 
ing shifted from Central to South America, resulting in a signifi- 
cant upgrading in the quality of professional education received. 
Although many officers were still promoted from the ranks, the per- 
centage of those with academy training gradually increased. By 1979 
some 315 of 700 officers were academy graduates. 

Since the early 1950s, approximately 5,000 Panamanian officers 
and enlisted men have been trained by the United States. Although 
some of these students were sent to the United States, the majority 
attended United States facilities located in the former Canal Zone, 
including the United States Army School of the Americas, the Inter- 
American Air Forces Academy at Albrook Air Force Base, and the 
Small Craft Instruction and Training School at the Naval Support 
Facility near the Pacific end of the canal. Although in the late 1980s 
some FDP personnel still received training at United States facili- 
ties, their numbers were reduced because the School of the Americas 
moved to Fort Benning, Georgia, in 1984. Nevertheless, for the 
majority of Panamanian officers, the command and staff course 
given at the School of the Americas remained the final rung on 
the educational ladder. 

One of the FDP's most important training facilities was the CIM 
located near Panama City at Fort Cimarron. It housed the Air- 
borne School and offered a parachute-rigging course in addition 
to its responsibility for the basic training of recruits and the refresher 
training of all military personnel in subjects such as patrolling, first 
aid, and map reading. Besides providing regular teaching and field 
training, the facility assisted in the development of new courses 
of instruction designed to keep the organization abreast of inno- 
vations and current methods of military operation. Its comman- 
dant, usually a major or captain, was assisted by an executive officer 
and a staff and faculty consisting of officers and sergeants. 

Another Panamanian school, the General Tomas Herrera Mili- 
tary Institute (Instituto Militar General Tomas Herrera), was 
located at Omar Torrijos Military Base in Rio Hato. Established 
in 1974 on the model of a Peruvian military high school, it offered 
training for young people who might some day choose to pursue 
a military career. It also provided the Defense Forces with techni- 
cally trained personnel proficient in developmental fields such as 
agronomy. As of 1986, ten classes had been graduated from the 
institute and many of its students were receiving scholarships to 
various military academies throughout Latin America. 

The Jose Domingo Espinar Educational Center was an FDP 
training facility that replaced the United States Army School of the 



241 



Panama: A Country Study 




1st Infantry Company 2d Infantry Company 3d Infantry Company 

Airmobile Air Transportable 




4th Infantry Company 5th Military Police 6th Infantry Company 

Company 




7th Infantry Company National Navy Panamanian Air Force 



Source: Based on information from Defensa, Panama City, December 1979, 5. 

Figure 13. Selected Unit Insignia of the Panama Defense Forces, 1987 



Americas. Located near Colon, this center was named after the 
Panamanian patriot who first declared territorial independence from 
Colombia. It had a number of different faculties and offered a vari- 
ety of courses on subjects such as basic criminal investigations, basic 
intelligence, English language, and radio communications. It also 
offered a promotion course for future noncommissioned officers. 
The ACAPOL, which offered basic police training, was housed 
in this facility. The academy offered a wide variety of courses to 



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both officers and enlisted personnel and high-level seminars deal- 
ing with national problems. The importance of this facility within 
the educational structure of the Defense Forces was indicated by 
the fact that its commander in the mid-1980s was a lieutenant 
colonel. 

Other FDP training facilities included the Benjamin Ruiz School 
for Noncommissioned Officers (Escuela de Suboficiales Benjamin 
Ruiz), the Command and Special Operations School (Escuela de 
Comando y Operaciones Especiales), and the Pana-Jungla School 
(Escuela Pana-Jungla). The School for Noncommissioned Officers 
was established in 1986 at Omar Torrijos Military Base. It was 
primarily a training facility designed to identify prospective second 
lieutenants. Secondary school graduates went through a two-year 
training program and were awarded the rank of first sergeant. Fol- 
lowing two years of "on-the-job training" and additional courses, 
the best of the group became second lieutenants. The Command 
and Special Operations School was a facility for training members 
of the infantry companies in various types of special activities. 
Graduates were mostly sergeants with more than ten years of mili- 
tary service. The Pana-Jungla School was located in Bocas del Toro 
Province along the Rio Teribe and near the Costa Rican border. 
Commanded by a major, it offered training in jungle survival skills 
to both Panamanian soldiers and military personnel from other 
countries. 

Foreign Military Assistance 

Ever since the early post-World War II period, Panama has been 
the recipient of some annual military aid under various programs 
established by the United States government (see table 19, Appen- 
dix A). In a diplomatic message accompanying the Panama Canal 
treaties, the United States agreed (pending congressional approval) 
to provide up to US$50 million in credits under the Foreign Mili- 
tary Sales (FMS) program. The credits were to be spread over the 
first ten years of the treaty period. 

In fact, FMS deliveries to Panama have risen dramatically in 
the 1980s, from a mere US$187,000 in fiscal year (FY) 1980 to 
over US$12 million in FY 1986. Assistance under the International 
Military Education and Training Program also has registered a 
steady increase from US$270,000 in FY 1980 to US$575,000 in 
FY 1985, with a slight drop to US$507,000 in FY 1986. 

In late 1987, however, it remained to be seen whether and under 
what circumstances Panama would continue to receive United 
States military aid. The United States suspended all military and 
economic aid to Panama in the summer of 1987, in response to 



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Panama: A Country Study 

Panama's failure to take steps toward a democratic, civilian-ruled 
government, in accordance with conditions associated with the 
Panama Canal treaties. 

Canal Defense 

Some observers have held that the Panama Canal cannot be 
defended. Even as early as 1953, a simulated nuclear strike dur- 
ing exercises near Miraflores Locks demonstrated the locks' extreme 
vulnerability to such attack (see fig. 3). Four years later in "Opera- 
tion Caribbean," United States war gamers found the canal's 
defenses inadequate and asked the government of Panama for mis- 
sile sites outside the Canal Zone. The Panamanians, however, 
feared that United States missile sites would only make their country 
more of a target for someone else's missiles; in addition, they did 
not want to give up any more territory to the United States. Years 
later, testimony before committees of the United States Congress 
during treaty hearings pointed out the vulnerability of the locks 
to various kinds of sabotage, such as placement of an explosive in 
the hydraulic system. 

Vulnerability to attack or sabotage notwithstanding, the canal 
is mandated to be defended by the combined military efforts of 
Panama and the United States. With this fact as a basic assump- 
tion, the drafters of the Panama Canal treaties spelled out the modus 
operandi for joint defense in the Treaty Concerning the Perma- 
nent Neutrality and Operation of the Panama Canal and projected 
the possibility of United States military assistance to Panama even 
into the twenty-first century (see Appendix B). Among the five bina- 
tional bodies established by Panama and the United States to handle 
all matters concerning the canal until December 31, 1999, two — 
the Combined Board and the Joint Committee — were set up to take 
care of defense affairs. The Combined Board consisted of an equal 
number of senior military representatives from each country, who 
consulted and cooperated on all matters dealing with defense and 
planned "actions to be taken in concert for that purpose. ' ' Specifi- 
cally, the board was charged with coordinating such matters as the 
preparation of canal defense contingency plans and the planning 
and execution of combined military exercises. The board was fur- 
ther charged with reviewing defense needs and making recommen- 
dations to the respective national governments and assessing at 
five-year intervals the resources provided by the two countries for 
their defense commitments. 

The Joint Committee, which also consisted of senior military 
officers and their deputies, looked after the day-to-day contacts and 
cooperation between the two defense forces. The United States half 



244 



U.S.S. Tarawa enters Pedro Miguel Locks, 
Panama Canal, July 1976 
Courtesy Agency for International Development 

of the committee also dealt with United States military personnel 
and civilian employees and their dependents under the status-of- 
forces agreements. The Agreement in Implementation of Article 
IV of the Panama Canal Treaty spelled out the complex responsi- 
bilities and functions of the Joint Committee in detail. To accom- 
plish its numerous and varied tasks, the committee was divided 
into subcommittees, each having several sections. Because neither 
the Combined Board nor the Joint Committee had decision mak- 
ing or command authority, deadlocked issues had to be referred 
to their respective governments. 

Between 1979 and 1985, at least sixteen joint military exercises 
involving Panamanian and United States forces took place, test- 
ing combined capabilities to defend the canal. Beginning in 1982, 
a series of exercises called "Kindle Liberty" were conducted. These 
exercises practiced the rapid movement of support troops from the 
United States, evaluated operational terrain, and tested joint troop 
coordination and performance. Generally, Kindle Liberty exercises 
involved Panamanian companies from Battalion 2000 and the Peace 
Battalion and United States forces from the 193d Infantry Brigade 
stationed in the canal area and from Fort Bragg, North Carolina. 
Combined troop participation normally ranged from 3,000 to 5,000. 
A series of operations called "Black Fury" were also conducted 



245 



Panama: A Country Study 

between 1979 and 1981 in the canal area. Their primary purpose 
was to simulate defending the canal from an attack by guerrilla 
forces by mobilizing troops in both Panama and the United States. 
Black Fury training exercises involved approximately 5,000 United 
States troops, including some from various state national guards. 

Joint military exercises held in the mid-1980s were larger than 
those held previously. "Minuteman II" in 1985, for example, 
involved 10,000 United States troops from various national guard 
units in Puerto Rico, Florida, Texas, Alabama, Missouri, and Loui- 
siana in addition to 5,000 members of the FDP. These exercises 
also dealt more with scenarios of guerrilla or low-intensity conflict. 
For example, in early 1986 a joint exercise called "Donoso 86" 
was held on a remote portion of the Atlantic coast west of the ter- 
minus of the canal. The scenario called for a large band of guerril- 
las operating with extensive foreign backing to have gained the 
support of the local population. The primary Panamanian forces 
involved in this exercise came from Battalion 2000, and the main 
United States contingent was from the 193d Infantry Brigade. In 
early 1987, a joint exercise called "Candela 87" was conducted 
on the border with Costa Rica using various tactical units of the 
FDP, including the Peace Battalion. The future of these exercises 
was uncertain in late 1987, however. After the United States Con- 
gress prohibited the use of FY 88 funds for military exercises in 
Panama, all such joint ventures were suspended. 

Involvement in Political and Economic Affairs 

Panama's security forces have changed dramatically since inde- 
pendence. Originally established as a police force after the national 
army was abolished, these forces evolved toward a paramilitary 
configuration during the 1950s and 1960s. In the late 1970s, they 
began to evolve once more as Panama assumed responsibility for 
defending the canal. During each successive stage, prior functions 
and missions were not abandoned; rather, new ones were added. 
These three different stages of institutional development were associ- 
ated with three distinct types of military participation in politics. 
During the earliest period when the security forces performed a 
police role, the institution merely reflected the interests of the 
dominant civilian elite. Thus, they were used to keep the peace 
and to prevent the urban masses from challenging the elite through 
strikes and other socially disruptive types of activity. 

With the adoption of a paramilitary role, the newly formed 
National Guard began to act politically to further its own interests 
and those of the commander in chief. The Guard not only began 
to serve as the court of last resort for settling feuds among the 



246 



Queen Elizabeth 2 transits Miraflores Locks, 
Panama Canal, March 1977 
Courtesy Agency for International Development 

civilian elite, but eventually seized political power in its own name. 
Under the leadership of Torrijos, the National Guard and its Gen- 
eral Staff fashioned a "civilian" political regime in their own image, 
but real power remained in the hands of the military (see The 
Panama Defense Forces, ch. 4). In 1983 Panama implemented con- 
stitutional changes aimed at restoring direct presidential elections, 
but it was clear that even Torrijos 's death would not force the mili- 
tary to give up its central role in politics. Despite the Constitu- 
tion's assertion that the ultimate political authority in Panama was 
the will of the people, the civilian government that expressed this 
will was expected to rely heavily on the advice of the military. 
According to the Constitution, "Power emanates from the people 
and is exercised by the government through a distribution of func- 
tions among the executive, legislative, and judicial branches act- 
ing in harmonic collaboration with the National Guard." 

The central role played by the FDP during the 1980s was the 
logical outgrowth of both the historical evolution of Panama's secu- 
rity forces and changes in the civilian sector. Before the National 
Guard was created in the early 1950s, officers in the National Police 
did not have enough social standing or sufficient institutional sup- 
port to play a significant role in politics. By the 1970s, however, 
officers had emerged with enhanced social status, an enlarged 



247 



Panama: A Country Study 

institutional power base, and growing links with marginalized 
civilian groups. As the "spokesman" for these groups during the 
1970s and 1980s, the military worked to implement social and eco- 
nomic policies viewed as being both in the interest of these groups 
and of benefit to the military itself. 

In the economic sphere, the National Guard and the Defense 
Forces have sought to have civilian technocrats whose views were 
similar to those of the military appointed to key decision-making 
positions. During the 1970s, for example, Torrijos worked with 
a small group of professionals from the reform wing of the National 
Liberal Party, placing them in key government positions. And in 
supporting the presidential candidacy of Nicolas Ardito Barletta 
Vallarino (a former vice president of the World Bank) in 1984, 
the Defense Forces once again demonstrated their penchant for 
working with like-minded civilian professionals. 

Top FDP officers were also alleged to have been engaged in a 
wide variety of legal and illegal business activities. A series of articles 
published in the New York Times in 1986 suggested that the FDP 
commander was deeply involved in both drug transactions and arms 
smuggling. Panama's alleged role in the drug business had never 
historically been related to production activities (although some 
marijuana was supposedly grown there) but rather to transship- 
ment and the laundering of illicitly obtained funds. The articles 
went so far as to suggest that the FDP commander in chief was 
not only aware of these activities but played an active role in 
encouraging them. Subsequently, additional credible evidence of 
FDP involvement in drug-trafficking and money-laundering activi- 
ties continued to surface. 

The Defense Forces have at times cooperated with the United 
States government in some activities related to drug enforcement, 
such as making arrests, extraditing traffickers, and seizing boats car- 
rying drug cargoes. In response to a United States request, Panama 
made drug money-laundering illegal in 1986 and agreed to give 
United States authorities access to certain bank records in drug inves- 
tigations. "Operation Pisces," a drugs and money-laundering sting 
launched by the Drug Enforcement Administration in 1987 against 
cocaine traffickers, received extensive support from Panamanian 
authorities. Nevertheless, observers increasingly believed that such 
cooperation was an expedient ploy to sacrifice lower-level operations 
and personnel in order to safeguard more significant illegal activities. 

United States Forces in Panama 

United States military forces have been present in Panama since 
that nation broke away from Colombia at the beginning of the 



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twentieth century. Indeed, the presence of the U.S.S. Nashville and 
the U.S.S. Dixie had influenced the outcome of Panama's revolt. 
Even before completion of the canal, United States soldiers or 
marines occasionally intervened in Panamanian affairs, usually at 
the request of local officials and in compliance with the 1903 treaty 
that gave the United States government broad discretionary pow- 
ers. United States intervention took a new turn in 1918, when the 
United States unilaterally intervened to restore stability during a 
Panamanian political crisis. Most United States forces withdrew 
after elections were held and the crisis eased; however, a detach- 
ment of marines remained in Chiriqm Province for about two years 
for the purpose of maintaining public order. 

Even though the National Police had been somewhat profession- 
alized under the leadership of Albert R. Lamb, police authority 
dissolved in 1925 in the face of a renters' strike in Panama City. 
High rents charged for workers' housing by the urban oligarchy 
caused the strike, which turned violent and resulted in many deaths 
during two days of rioting. Panamanian authorities requested aid, 
and 600 United States Army troops carrying rifles with fixed bayo- 
nets entered the city to restore order. The rioters were dispersed, 
and for twelve days United States soldiers patrolled the streets keep- 
ing order and guarding government officials and property. Simi- 
lar rent strikes recurred in 1932 but with the National Police 
restoring order. Intervention or the threat of intervention from 
United States forces continued to be an irritant to the Panamanian 
people and a cause celebre for Panamanian politicians over the next 
several years. In 1936 negotiations between the two countries 
resulted in an agreement that prohibited United States interven- 
tion in Panamanian civil affairs (see A New Accommodation, ch. 1). 

During and immediately after World War II, the United States 
military presence in the Canal Zone underwent a metamorphosis 
corresponding to broad hemispheric developments. When Nazi 
activities in Latin America became widespread, and to counteract 
German influence, interest in some kind of joint defense revived. 
Shortly before the United States entered the war in December 1941 , 
the United States had begun to establish military missions in the 
capital cities of the Latin American republics. The missions served 
as liaison agencies between the military establishment of the United 
States and those of the Latin American countries, and mission per- 
sonnel became advisers to the Latin American military. After the 
war, canal defense continued to be the primary United States mis- 
sion, but the United States Caribbean Command in Panama 
retained responsibility for United States security interests through- 
out Latin America and administered the aid and advisory programs 



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Panama: A Country Study 

for the entire area. In 1963 the Caribbean Command was redesig- 
nated the United States Southern Command (SOUTHCOM), 
retaining the same functions and responsibilities. 

Transfer of control of the Canal Zone to Panama in 1979 did 
not substantially alter the mission of SOUTHCOM because the 
United States retained primary responsibility for defense; as a result, 
observers expected SOUTHCOM or a similar successor organi- 
zation to remain in place until United States obligation under the 
Panama Canal treaties is fulfilled at the end of the century. 
SOUTHCOM is what is known in common military parlance as 
a unified command, that is, one in which all services operate under, 
and are responsible to, a single commander. Because the army has 
historically been the principal component of United States forces 
in Panama, SOUTHCOM has been under the command of an 
army general. 

The primary missions of SOUTHCOM remained much as they 
had been during previous decades: to defend the Panama Canal, 
to administer programs of military assistance to Latin American 
military institutions, to coordinate United States participation in 
joint military exercises in the region, and to help with disaster relief. 
Major SOUTHCOM installations included the general headquar- 
ters at Quarry Heights, Fort Clayton, Fort Davis, Fort Sherman, 
Rodman Naval Base, Fort Amador, and Howard Air Force Base. 
Fort Clayton served as headquarters for the most important United 
States military unit in the area, the 193d Infantry Brigade. The 
Brigade consisted of two infantry battalions, one special forces bat- 
talion, and a combat support battalion, in addition to other special- 
ized units. Overall SOUTHCOM military strength in the 
mid-1980s was approximately 9,400 men and women of the army, 
navy, and air force. By the terms of the Panama Canal treaties, 
the United States pledged to maintain its armed forces at a peace- 
time manning level, that is, not in excess of the number that were 
present in the zone just before the treaty became effective. 

A Status-of-Forces Agreement (SOFA) between the United States 
and Panama was combined with the Base Rights Agreement as 
part of the Panama Canal treaties. The SOFA details the legal rights 
and obligations of United States military personnel and their depen- 
dents residing in Panama and stipulates crimes over which the 
United States military or the Panamanian courts have jurisdiction. 

Administration of Justice 

For the first several years of its existence, Panama depended on 
the legal code inherited from Colombia. The first Panamanian 
codes, promulgated in 1917, were patterned on those of Colombia 



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and other Latin American states that had earlier broken away from 
the Spanish Empire; therefore, Panama's legal heritage was based 
on Roman law as passed on through Spain and its colonies. 
Nevertheless, several features of Anglo-American law have also been 
accepted in Panama. Habeas corpus, a feature of Anglo-American 
legal procedure that is not found in many Latin American codes, 
has been constitutionally guaranteed in Panama. Judicial prece- 
dent, another Anglo-American practice, has also made some head- 
way; however, judges and magistrates usually have had little leeway 
in matters of procedure, delays, and degrees of guilt. 

The Public Ministry provided for in the Constitution has 
defended the interest of the state; fostered the enforcement and 
execution of laws, judicial decisions, and administrative orders; 
supervised the official conduct and the performance of duty of public 
officials; prosecuted offenses of constitutional or legal provisions; 
and served as legal adviser to administrative officials. The func- 
tions of the Public Ministry were fulfilled by the attorney general 
of the republic, the solicitor general, the district attorneys, and the 
municipal attorneys. There were two alternates for each official 
of the ministry; all were appointive positions. The attorney general, 
the solicitor general, and their alternates were executive appoin- 
tees; district attorneys and municipal attorneys were appointed by 
their immediate superiors in the judicial system. They in turn 
appointed subordinate personnel in their own offices. 

In addition to the stipulations of "free, prompt, and uninter- 
rupted" administration of justice and the establishment of the Public 
Ministry, the Constitution has several other statements about the 
application of laws, the treatment of citizens under the law, and 
the handling of prisoners. Article 21 guarantees freedom from 
arbitrary arrest, and Article 22 provides for habeas corpus. Arti- 
cle 29 prohibits the death penalty. Article 42 provides that "In 
criminal matters, a law favorable to the accused always has priority 
and retroactivity, even though the judgement may have become 
final." Article 163 gives the president power to grant pardons for 
political offenses, to reduce sentences, and to grant parole. Article 
187 states that a person convicted of an offense against public order 
may not hold any judicial office in the future. Article 197 estab- 
lishes trial by jury. 

Under a section of the Constitution headed "Individual and 
Social Rights and Duties," private citizens are assured that they 
can be prosecuted by government authorities only for violations 
of the Constitution or the law. The procedure for arrests is also 
described, stating that arrests may result from response to com- 
plaints made to the police or from direct action on the part of police 



251 



Panama: A Country Study 

or DENI agents at the scene of the crime or disturbance. The 
validity of citizen's arrest is recognized: "An offender surprised 
flagrante delicto may be apprehended by any person and must be 
delivered immediately to the authorities." No person may be held 
for more than twenty-four hours by the police without being brought 
before competent authority. The Constitution forbids arrest or 
detention for violation of purely civil obligations or for debts. 

During the course of an investigation, the accused and all wit- 
nesses are questioned, the latter under oath. The Constitution 
guarantees that no accused person may be forced to incriminate 
himself or herself, and the authorities are forbidden to force tes- 
timony from any close relative, whether related by blood or mar- 
riage, that is, "within the fourth degree of consanguinity or the 
second degree of affinity." Investigators may enter a person's home 
only with consent or a written order (search warrant) from a com- 
petent authority or to assist victims of crime or natural disaster. 
In general, all testimony must be presented in written form and 
be signed by investigators, accused, and witnesses. If a case war- 
rants prosecution, it is referred to the appropriate court. Although 
bail is permissible in some cases, it is a privilege subject to many 
restrictions and may be denied at the request of the prosecutor if 
a judge concurs. 

There was considerable evidence that many of these constitu- 
tional provisions were not realized in the daily lives of Panamanian 
citizens in the late 1980s. The most striking example was the case 
of Dr. Hugo Spadafora. Spadafora was a former senior govern- 
ment official, who had criticized the role of the Defense Forces in 
politics and the alleged role of Noriega in drug trafficking. 
Spadafora's headless body was found in Costa Rica near the border 
of Panama in September 1985 after reports that he had been taken 
into custody by members of the Defense Forces. There also were 
allegations that Dr. Mauro Zuniga, head of an opposition group 
called the National Civilian Coordinating Committee (Coordinador 
Civilista Nacional — COCINA), was abducted and beaten. 

Although the Constitution provides for habeas corpus and the 
prompt and uninterrupted administration of justice, several inci- 
dents suggested that these principles were sometimes violated. It 
should also be noted that various articles of the Constitution guaran- 
teeing basic rights were suspended during the temporary state of 
emergency declared in 1987. Moreover, the government responded 
with excessive brutality to popular marches and demonstrations 
in Panama in mid- 1987. According to a December 1987 United 
States Senate staff report on Panama, over 1,500 persons were 
arrested between June and September 1987. Credible evidence 



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suggests that many of them were subjected to cruel and inhuman 
treatment while in jail. 

Criminal Justice 

The Criminal Code and the Administrative Code, respectively, 
defined crimes against public order, public security, public trust, 
decency, the person, and property as felonies (delitos) or mis- 
demeanors (faltas), depending on the seriousness of the crime. 
Although sentences also were prescribed according to the serious- 
ness of the crime, in nearly all cases the codes established upper 
and lower limits within which a court had discretion in sentenc- 
ing. In crimes of violence against government officials, more severe 
sentences were prescribed. 

Capital and corporal punishments were prohibited. The most 
severe penalty permitted for a single offense was a twenty-year 
imprisonment, and prison sentences were differentiated as to place 
of confinement. All prisoners could be required to perform prison 
labor whether or not it was included in a sentence. The most severe 
sentence, a specific type of imprisonment (reclusion), included the 
place of confinement — Coiba Penal Colony on the Isla de Coiba — 
and the manner of serving — hard labor. A sentence of reclusion could 
range from thirty days to twenty years. The sentence of simple 
imprisonment (prision) could range from thirty days to eighteen 
years, but serving in Coiba was not inherent in the sentence. 
Depending on the seriousness of their crimes, prisoners sentenced 
to reclusion could be eligible for parole after three-quarters of the 
term had been served, and those sentenced to prision could be eligible 
after serving two-thirds of the term. 

Detention (arresto) was a penalty assessed for less serious offenses 
and could extend to eighteen months, usually served in a local jail. 
A punishment without physical restraint (confinamiento) limited the 
offender to a specified place of residence that had to be at least thirty 
kilometers from the scene of the crime and from where the victim 
resided. The period of the confinamiento was at the discretion of the 
court unless prescribed in law. Fines (multas) were the least severe 
penalties and in some cases were added to jail sentences. If an 
offender failed to pay or defaulted on payments, a multa was con- 
vertible to arresto in a ratio of money to time prescribed by law. 

Conditional penalty (condena condicional) was a suspended sen- 
tence used at the discretion of a court in the sentencing of a first 
offender, except on a major felony charge. The sentence required 
residing at a fixed address and reporting any change, frequent visits 
to the court, and checks by the police on the offender's conduct. 
Many misdemeanors were punished by suspended sentences, fines, 



253 



Panama: A Country Study 



or short periods in jail. Sentences of public labor without confine- 
ment could also be adjudged at the discretion of a court. 

Provisions for appeal existed in the system, and many categories 
of cases required automatic review in a higher court. Time limits 
were set on the preparation of appeals and court action on them, 
as well as on the time taken for automatic review. Few cases could 
be appealed to the Supreme Court, an appeal usually requiring 
that an error be shown in the handling by a lower court. Prosecu- 
tors also had the right of appeal. 

The cases of minors were handled in a special system designed 
to combat juvenile delinquency and to keep young offenders from 
contact with hardened criminals. The Guardianship Court for 
Minors (Tribunal Tutelar de Menores), established in 1951, worked 
closely with the Defense Forces, DENI, and various social agen- 
cies to handle the cases of young offenders and to provide them 
with guidance and assistance if possible. Cases involving persons 
under age eighteen were not made public. 

Although trial by jury is established by Article 197 of the Con- 
stitution, the same article stipulates that "the law will determine 
the cases to be decided by this system." In practice, most criminal 
cases, except for those heard in the night courts of Panama City 
and Colon, were conducted by deposition, and the accused was 
not present during the proceedings. Only the most serious crimi- 
nal cases, that is, those involving homicide or other heinous crimes, 
were heard by juries in the presence of the accused. Decisions were 
usually made by judges or magistrates after consideration of deposi- 
tions from defense attorneys and prosecutors. Defendants and their 
attorneys were entitled to be fully informed of charges and the evi- 
dence on which charges were brought, and they could appeal the 
charges or later appeal the sentence. 

One of the continuing sources of complaints concerning the system 
of criminal justice has centered around use of the night courts in 
Panama City and Colon. Judges, operating from 6:00 P.M. until 
6:00 A.M., have been accused of dispensing justice in an arbitrary 
and summary manner. Some offenders have found themselves serv- 
ing a sentence (of up to one year) without ever having been allowed 
to consult an attorney. The independence of the judiciary has also 
been called into question because of executive interference and, more 
particularly, because of interference from the G-2 of the Defense 
Forces, which has assumed de facto right of review in criminal cases. 

The Penal System 

Article 27 of the Constitution declares that the prison system is 
based on the principles of security, rehabilitation, and the protection 



254 



National Security 



of society. Provisions have been made to establish training pro- 
grams designed to teach skills and trades that will afford prisoners 
the opportunity of reentering society as useful citizens after they 
complete their sentence. The same article also prohibits physical, 
mental, and moral abuse of prisoners. Juvenile offenders who were 
sentenced by a court were cared for in a special system that provided 
protection and education and attempted to rehabilitate minors 
before they came of age. Women were also segregated in the penal 
system. 

The Department of Corrections was established in 1940 to admin- 
ister the country's penal system for the Ministry of Government 
and Justice. Operation of the prisons had previously been a direct 
function of the National Police. The intention of the government 
officials who established the Department of Corrections was to end 
the inherent abuses in the system, but the new department was 
never properly staffed, and police had to be used as jailers. The 
same situation continued in the mid-1980s; because of understaff- 
ing in the Department of Corrections, most jails were staffed by 
members of the Defense Forces, and the prison system was still 
considered an entity of the FDP. Other abuses apparently also con- 
tinued. Major complaints expressed about the penal system con- 
cerned overcrowding, poor sanitation facilities, and lack of adequate 
medical attention. 

The Isla de Coiba has been the site of the Coiba Penal Colony, 
Panama's most severe prison, since 1919. Although most of its 
prisoners were sentenced by courts to specified terms, sometimes 
persons were sent to Coiba while awaiting the results of pretrial 
investigation or awaiting sentencing, a violation of judicial regu- 
lations, if, as indicated in the criminal code, Coiba was the most 
severe regime in the prison system. The prisoners were housed in 
a main camp and in several small camps scattered about the island, 
but there was no indication that pretrial detainees were segregated 
from prisoners serving sentences. In the main camp, there were 
some facilities for rehabilitation training and a small school; how- 
ever, many of the inmates had little or no access to those facilities 
because they lived some distance from the main camp. Work was 
required of all prisoners, including those awaiting trial or await- 
ing sentencing. Labor was unremunerated for the majority of pris- 
oners, most of whom were engaged in farming and animal 
husbandry in areas that they or former prisoners had cleared of 
jungle growth. Some mechanics and other skilled craftsmen received 
small wages for their labor. 

Another major prison, the Model Jail (Carcel Modelo), in Panama 
City was built in 1920; over the years, however, it acquired a 



255 



Panama: A Country Study 

reputation that belied its name. Its biggest problem, one not unique 
to the Model Jail or to Panama, was overcrowding. Cells intended 
to house three inmates were frequently found to have as many as 
fifteen; this severe overcrowding may have accounted for the large 
number of pretrial detainees that were sent to Coiba. First offenders 
confined to the Model Jail were not always segregated from hard- 
ened criminals, a pattern that prevailed throughout most of the 
prison system. Prisoners awaiting trial were often confined for 
extended periods before their cases appeared on a court docket, 
and there were complaints that rights to habeas corpus had been 
violated by holding some offenders incommunicado. 

There was a jail in each provincial capital. The same complaints 
of overcrowding and abuse of rights were reported from the outly- 
ing provinces. 

In contrast to the conditions under which male prisoners served 
sentences and awaited trial, women received much better care. The 
Women's Rehabilitation Center (Centro Feminino de Rehabilita- 
cion) in Panama City appeared to be an ideal prison. The center 
was under the supervision of the Department of Corrections, as 
were all prisons in Panama, but it was operated by nuns who had 
established a reputation for discipline tempered by humaneness and 
decency. Few complaints were reported from prisoners at the wom- 
en's center. When first arrested, however, women were sometimes 
held overnight or for several nights at the Model Jail where, even 
though segregated, women experienced conditions that differed littie 
from those described for men. 

Incidence of Crime 

The number of persons arrested for felonies and misdemeanors 
rose from 18,491 in 1980 to 20,073 in 1983 or from 9.5 per 1,000 
inhabitants in 1980 to 9.6 per 1,000 inhabitants in 1983. When 
figures were broken down according to province, the greatest num- 
ber of arrests in 1983 were found in the most populous province, 
Panama, which accounted for approximately 50 percent of the total. 
Chiriqui and Colon ranked second and third in number of arrests, 
and in each case the principal cities (David and Colon) accounted 
for very high percentages of the totals. The statistics gave no details 
concerning the crimes for which the listed arrests were made. 

Crimes by juveniles (persons under eighteen) increased during 
the early 1980s. The number of cases handled by the Guardian- 
ship Court for Minors rose from 2,923 in 1980 to 3,136 in 1983. 
Although juvenile offenses ran the gamut from homicide (17 in 
1983) to traffic infractions serious enough to be taken to court 



256 



National Security 



(275 in 1983), the largest increases were in the categories of property 
damage, attacks against persons, and fights. 

National Security 

As perceived by the Defense Forces, threats to national security 
were of two basic types: those arising from domestic insurgency 
and those of foreign origin. Although the FDP has conducted mili- 
tary exercises to deal with the contingency of guerrilla activity, there 
was no such activity in Panama through the mid-1980s. 

To understand the military's perception of internal threat, it is 
important to note that the Defense Forces were closely identified 
with the formation of the political regime in existence in the late 
1980s. This regime was formed in 1968 when Torrijos and the 
National Guard seized power through a coup d'etat. For two 
decades, the military served as the ultimate guarantor of this politi- 
cal regime, whether headed as it was in the early 1970s by Torrijos 
or later by a succession of civilian presidents. Given this history 
of close military association with the existing political regime, there 
has been a tendency to view any domestic political challenge to 
it (democratic or otherwise) as a threat to national security. 

The belief by members of opposition political parties that the direct 
elections for president held in 1984 had been rigged by the FDP 
led them to challenge the legitimacy of Ardito Barletta's government. 
When he was removed by the Defense Forces in 1985 and replaced 
by Eric Arturo Delvalle Hennquez, political opposition groups 
became even more vociferous in their charges of military interfer- 
ence in politics. Charges of electoral fraud and FDP involvement 
in perpetrating it were rendered even more credible in 1986, when 
articles in the New York Times cited high United States government 
officials as having proof that the electoral results had been rigged. 

Responses by the Defense Forces to these charges of electoral 
fraud demonstrated the relationship they saw as existing between 
domestic political opposition and national security. In April 1986, 
following a period in which United States congressmen and 
Panamanian political parties openly criticized the Defense Forces, 
400 lieutenants issued a statement that was read by one of their 
number on national television. The "Lieutenants' Declaration" 
suggested that foreign and domestic groups were attacking the FDP 
in an effort to destroy its national cohesion and undermine national 
security: "For the first time in our republican history . . . politi- 
cal groups — although they consider themselves to be democratic 
and idealistic — have adopted an open position of selling out the 
national interest and have opened up the embarrassing possibility 
of foreign intervention." 



257 



Panama: A Country Study 

The FDP viewed this threat to national security as also emanat- 
ing from the links between the domestic political opposition and 
certain United States congressional leaders opposed to the exist- 
ing regime. President Delvalle and the FDP suggested that there 
was a "seditious plot" involving the United States Department 
of State and certain "bad Panamanians" aiming not only to have 
the president removed from office but also to roll back the clock 
to the 1960s, when the oligarchy dominated the political arena. 

Troops of the Defense Forces, particularly the First Public Order 
Company (Doberman), have been used on occasion to quell domes- 
tic rioting viewed as a threat to national security. Most public 
demonstrations and riots during the mid-1980s resulted from 
deteriorating economic conditions related to the global recession. 
In 1986 the National Council of Organized Workers called a forty- 
eight-hour general strike that eventually resulted in some random 
violence and one death. The most extensive use of military forces 
to quell domestic violence came in 1987, following accusations about 
Noriega's involvement in electoral fraud and narcotics trafficking 
made by the forcibly retired former chief of staff, Colonel Roberto 
Diaz Herrera. 

Whereas the Panamanian military's role as a police force had 
traditionally conditioned it to concentrate on internal threats to 
national security, the FDP has increasingly turned its attention to 
the external environment. The crises affecting several of the coun- 
tries in Central America, coupled with the FDP's assumption of 
the new military mission of defending the canal, have led to a seri- 
ous concern with security policy in the broadest sense. New units 
such as the Peace Battalion were specifically charged with defend- 
ing the border and preventing illegal immigration from countries 
such as Nicaragua and El Salvador. Battalion 2000 's participation 
in United States-Panamanian military field exercises was intended 
to make it capable of rebuffing threats to the canal from guerrilla 
groups supported by a foreign power. 

To the extent that Panamanian foreign policy is a reflection of 
opinion within the FDP, it suggests that the military thinks geo- 
strategically about the security of the canal in the context of a volatile 
regional situation. Panama, as one of the original "Core Four" 
mediators (along with Mexico, Venezuela, and Colombia) in the 
Contadora peace process (see Glossary), has been an active par- 
ticipant in the search for negotiated peace settlements in Central 
America. However, the Panamanians have argued, often through 
Noriega, that any peace treaty for Central America with no mili- 
tary "teeth" would not bring true peace. In addition, Noriega has 
often stated that the region's military leaders must be actively 



258 



National Security 



involved in the peace process. The FDP's view appears to be that 
the security of Panama and the canal demands a strong regional 
military structure capable of ensuring treaty compliance. From the 
above, it can be gathered that the FDP has come to view ques- 
tions of national security in much the same light as they have tradi- 
tionally been viewed by other Latin American armies. 

The magazine Defensa, published by the G-3 of the Defense 
Forces, is an indispensable source of information concerning mili- 
tary developments in Panama. It contains articles on organizational 
structure, military exercises, and political orientation. For a broad 
understanding of the historical evolution of the military since inde- 
pendence, two books are useful: Renato Pereira's Panama: fuerzas 
armadas y politica and Steve C. Ropp's Panamanian Politics: From 
Guarded Nation to National Guard. The Panama Canal treaties, imple- 
mentation agreements, and records of congressional hearings on 
the treaties are essential as sources of information on Panamanian 
security affairs and the future United States role in those affairs. 
The administration of justice as well as a range of matters affect- 
ing United States-Panamanian security relations were treated at 
length in the hearings on "The Situation in Panama" held by the 
United States Senate in March and April 1986. (For further infor- 
mation and complete citations, see Bibliography.) 



259 



Appendix A 



Table 

1 Metric Conversion Coefficients and Factors 

2 Population and Annual Growth Rates, Census Years 191 1-80 

3 Annual Population Growth Rates, by Province, 1970-80 

4 Indigenous Population, by Province or Territory, 1980 

5 Illiteracy Rates for Population over Ten Years of Age, by Sex, 

1970 and 1980 

6 Educational Enrollment, Selected Years, 1950-83 

7 Education Budgets, 1979-84 

8 Government Spending for Education, by Level of Instruction, 

1979- 83 

9 Schools, Classrooms, and Teachers, Selected Years, 1950-83 

10 Life Expectancy at Birth, by Sex, 1965 and 1985 

11 Medical Facilities, by Location, 1983 

12 Medical Personnel and Facilities, per 10,000 Inhabitants, by 

Location, 1983 

13 Birth and Death Rates, per 1,000 Inhabitants, 1979-83 

14 Central Government Budgets, 1981-85 

15 Distribution of Labor Force by Sector, Selected Years, 1965-85 

16 External Trade, 1980-85 

17 Balance of Payments, 1980-85 

18 External Capital and Debt, 1980-85 

19 United States Military Aid and Sales to Panama, Fiscal Years 

1980- 86 



261 



Panama: A Country Study 

Table 1. Metric Conversion Coefficients and Factors 



When you know Multiply by To find 



Millimeters 0.04 inches 

Centimeters 0.39 inches 

Meters 3.3 feet 

Kilometers 0.62 miles 

Hectares (10,000 m 2 ) 2.47 acres 

Square kilometers 0.39 square miles 

Cubic meters 35.3 cubic feet 

Liters 0.26 gallons 

Kilograms 2.2 pounds 

Metric tons 0.98 long tons 

1.1 short tons 

2,204 pounds 

Degrees Celsius 9 degrees Fahrenheit 

(Centigrade) divide by 5 

and add 32 



Table 2. Population and Annual Growth Rates, 
Census Years 1911-80 



Average Annual 
Years Growth Rate 

Census Year Population Covered (in percentage) 



1911 336,742 n.a. n.a. 

1920 446,098 1911-20 3.17 

1930 467,459 1920-30 0.47 

1940 622,576 1930-40 2.76 

1950 805,285 1940-50 2.56 

1960 1,075,541 1950-60 2.94 

1970 1,428,082 1960-70 3.06 

1980 1,831,399 1970-80 2.52 



n.a. — not applicable. 

Source: Based on information from Panama, Directorate of Statistics and Census, Panama 
en Cifras: Anos 1979-1983, Panama City, November 1984, 38-39. 



262 



Appendix A 



Table 3. Annual Population Growth Rates, by Province, 1970-80 

Annual Growth Rate 
Province (in percentage) 

Bocas del Toro 3.07 

Code 1.78 

Colon 2.11 

Chiriquf 2.37 

Darien 2.17 

Herrera 1.74 

Los Santos 0.48 

Panama 3.49 

Veraguas 1.63 

Source: Based on information from Panama, Directorate of Statistics and Census, Estadistica 
Panamena, No. 970, Panama City, March 1985, 6-7. 



Table 4. Indigenous Population, by Province or Territory, 1980 1 



Indigenous Percent 
Province or Territory Total Population Indigenous 



Bocas del Toro 53,487 17,468 33.00 

Chiriquf 287,350 30,862 11.00 

Comarca de San Bias 28,621 27,588 96.00 

Darien 26,524 8,924 34.00 

Panama 831,048 2,294 0.30 

Veraguas 173,245 5,955 3.00 

PANAMA 2 1,831,399 93,091 5.00 



1 Provinces of Colon, Code, Los Santos, and Herrera do not contain significant numbers of Indians, 
and statistics were not available for those provinces. 

2 Total is for all nine provinces and the Comarca de San Bias. 

Source: Based on information from Panama, Directorate of Statistics and Census, Panama 
en Cifras: Anos 1979-1983, Panama City, November 1984, 48-49. 



Table 5. Illiteracy Rates for Population over Ten Years of Age, 
by Sex, 1970 and 1980 





1970 


1980 




101,931 


84,515 


Female 


101,351 


89,610 


TOTAL 


203,282 


174,125 


Percentage of Total Population . . . 


21 


13 



Source: Based on information from Panama, Directorate of Statistics and Census, Panama 
en Cifras: Anos 1979-1983, Panama City, November 1984, 252. 



263 



Panama: A Country Study 



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264 



Appendix A 



Table 7. Education Budgets, 1979-84 



Ministry of Education 


University of Panama 


Percentage 


Percentage 


of Total 


of Total 


Amount* Budget 


Amount* Budget 



1979 85,037 18.4 16,681 3.6 

1980 110,913 15.3 17,332 2.4 

1981 120,153 15.2 21,455 2.7 

1982 133,862 12.1 22,801 2.1 

1983 145,927 12.7 26,665 2.3 

1984 217,840 18.3 32,294 2.7 



*In thousands of balboas; for value of the balboa — see Glossary. 



Source: Based on information from Panama, Directorate of Statistics and Census, Panama 
en Cifras: Anos 1979-1983, Panama City, November 1984, 266. 



Table 8. Government Spending for Education, 
by Level of Instruction, 1979-83 
(in thousands of balboas)* 

1979 1980 1981 1982 1983 



Primary 63,441 74,254 70,760 68,502 74,605 

Secondary 32,177 33,644 37,441 47,161 48,525 

University 19,769 24,316 31,897 41,105 43,442 

Adult education 866 126 1,523 1,161 845 

Other 39,394 49,773 53,412 56,238 61,708 



TOTAL 155,647 182,113 195,033 214,167 229,125 



*For value of the balboa — see Glossary. 

Source: Based on information from Panama, Directorate of Statistics and Census, Panama 
en Cifras: Anos 1979-1983, Panama City, November 1984, 268. 



265 



Panama: A Country Study 

Table 9. Schools, Classrooms, and Teachers, Selected Years, 1950-83 



Year Primary Secondary Postsecondary 



1950 

Schools 950 78 1 

Classrooms n.a. n.a. n.a. 

Teachers 3,415 959 n.a. 

1960 

Schools 1,298 127 2 

Classrooms n.a. n.a. n.a. 

Teachers 5,309 1,704 191 

1970 

Schools 1,784 192 2 

Classrooms n.a. n.a. n.a. 

Teachers 1,784 3,784 448 

1975 

Schools 2,171 209 2 

Classrooms n.a. n.a. n.a. 

Teachers 10,685 5,670 869 

1980 

Schools 2,306 301 2 

Classrooms 11,280 3,763 318 

Teachers 12,361 8,138 1,310 

1981 

Schools 2,316 307 2 

Classrooms 11,508 3,947 370 

Teachers 12,393 8,610 1,586 

1982 

Schools 2,347 313 3 

Classrooms 11,726 3,973 451 

Teachers 12,853 8,928 1,705 

1983 

Schools 2,376 321 3 

Classrooms 11,289 4,011 506 

Teachers 12,613 9,249 1,766 



n.a. — not available. 

Sources: Based on information from Panama, Directorate of Statistics and Census, Panama 
en Cifras: Anos 1973-1977, Panama City, November 1978, 176-80; and Panama, 
Directorate of Statistics and Census, Panama en Cifras: Anos 1979-1983, Panama 
City, November 1984, 256-59. 



266 



Appendix A 



Table 10. Life Expectancy at Birth, 


by Sex, 1965 


and 1985 




1965 


1985 


Male 


62 


69 


Female 


64 


73 



Sources: Based on information from Panama, Directorate of Statistics and Census, Panama 
en Cifras: Anos 1979-1983, Panama City, November 1984, 76; and World Bank, 
World Development Report 1986, New York, 1986, 233. 



Table 11. Medical Facilities, by Location, 1983 

Medical Local 

Hospitals Centers Clinics 

Cities 

Panama City 12 20 n.a. 

Colon 2 5 n.a. 

Provinces 

Bocas del Toro 3 4 56 

Chiriquf 6 31 98 

Code 3 17 46 

Colon 3 17 47 

Darien 3 5 32 

Herrera 5 11 23 

Los Santos 4 11 14 

Panama 16 53 63 

Veraguas 3 17 51 

Indigenous Territory 

Comarca de San Bias 4 4 13 

n.a. — not available. 

Source: Based on information from Panama, Directorate of Statistics and Census, Panama 

en Cifras: Anos 1979-1983, Panama City, November 1984, 221. 



267 



Panama: A Country Study 



Table 12. Medical Personnel and Facilities, per 10,000 
Inhabitants, by Location, 1983 



Hospital 
Beds Doctors 



Nur 



Cities 

Panama City 91 21.8 28.1 

Colon ... 48 12.5 15.4 

Provinces 

Bocas del Toro 31 4.1 6.5 

Chiriquf 25 6.1 5.9 

Code 24 4.4 4.1 

Colon , 24 8.2 8.3 

Darien 25 3.6 3.2 

Herrera 42 5.6 5.6 

Los Santos 67 6.1 6.1 

Panama 45 13.9 14.4 

Veraguas 17 2.6 3.2 

Indigenous Territory 

Comarca de San Bias 22 2.3 1.1 

PANAMA 36 9.0 9.4 

Source: Based on information from Panama, Directorate of Statistics and Census, Panama 
en Cifras: Anos 1979-1983, Panama City, November 1984, 223-26. 



2G8 



Appendix A 

Table 13. Birth and Death Rates, per 1,000 Inhabitants, 1979-83 



1979 1980 1981 1982 1983 



Live Births 





26 


1 


25 


5 


25.1 


25 


9 


25.7 


Rural 


30 


2 


28 


9 


28.9 


27 


4 


26.6 




28 


2 


27 


2 


27.0 


26 


7 


26.2 



Mortality 
All deaths 



In: 



Urban 


4.2 


4.1 


4.0 


4.2 


4.4 


Rural 


4.5 


4.2 


3.9 


3.7 


3.8 


Panama 


4.4 


4.2 


4.0 


4.0 


4.1 


ifant* 












Urban 


21.5 


19.4 


19.7 


17.1 


18.8 


Rural 


27.7 


23.9 


24.7 


22.6 


22.1 


Panama 


24.6 


21.7 


22.2 


19.9 


20.5 


Maternal 














0.4 


0.2 


0.4 


0.5 


0.2 


Rural 


1.0 


1.1 


0.8 


1.2 


1.0 


Panama 


0.7 


0.7 


0.6 


0.9 


0.6 



*Aged less than one year. 

Source: Based on information from Panama, Directorate of Statistics and Census, Panama 
en Cifras: Anos 1979-1983, Panama City, November 1984, 61. 



Table 14. Central Government Budgets, 1981-85 
(in millions of balboas) 1 

1981 1982 1983 1984 1985 2 

Consolidated public sector 

Revenues 1,169.0 1,264.5 1,385.5 1,424.6 1,531.8 

Expenditures 1,383.7 1,726.5 1,650.2 1,699.0 1,654.8 

Balance -214.7 -462.0 -264.7 -274.4 -123.0 

Unconsolidated public-sector 

balance 3 6.6 -2.0 17.4 8.0 12.0 

Total public-sector borrowing 

requirement 208.1 464.0 247.3 266.4 121.0 

As percentage of GDP 4 5.4 10.8 5.7 5.8 2.5 

1 For value of the balboa — see Glossary. 

2 Estimate. 

3 To which no transfers are made. 

4 GDP — gross domestic product — see Glossary. 

Source: Based on unpublished data provided by the Controlona General de la Republica 
de Panama, 1987. 



269 



Panama: A Country Study 

Table 15. Distribution of Labor Force by Sector, Selected Years, 1965-85 

(in percentage) 



Sector 1965 1973 1980 1985 

Agriculture 46.3 38.6 31.8 26.5 

Industry 15.8 17.8 18.1 16.1 

Services . '. 37.9 43.6 50.1 57.4 

TOTAL 100.0 100.0 100.0 100.0 



Source: Based on unpublished data provided by the Controloria General de la Republica 
de Panama, 1987. 



Table 16. External Trade, 1980-85 
(in millions of United States dollars at current prices) 

1980 1981 1982 1983 1984 1985 1 



Exports 



Bananas 


61 


6 


69 


2 


66 





75 





74 


7 


78.1 


Petroleum 


233 


3 


209 


1 


166 


6 


131 


2 


134 


4 


100.6 


Shrimp 


43 


7 


42 


7 


52 


9 


51 


4 


46 


7 


53.4 




65 


8 


52 


6 


23 


7 


41 


3 


42 


6 


33.3 


Manufactures 


31 


5 


31 


4 


38 


7 


29 


3 


34 


5 


45.0 


Other 


90 


2 


88 


9 


140 


9 


109 


9 


94 





104.1 


Total exports f.o.b. 2 . 


526 


1 


493 


9 


488 


8 


438 


1 


426 


9 


414.5 


nports 
























Food 


123 





115 


4 


124 


1 


130 





127 


8 


142.6 


POL 3 and other energy 


























424 


4 


426 


1 


408 


6 


384 





350 


2 


271.8 


Other consumer goods . . . 


162 


5 


195 





203 


2 


196 


5 


206 


9 


197.8 


Other intermediate goods . 


373 


4 


413 


6 


404 


5 


360 


6 


392 


8 


439.7 


Capital goods 


258 


7 


319 


8 


355 


6 


280 


8 


264 


4 


288.2 


Total imports c.i.f. 4 . 


1,342 





1,469 


9 


1,496 





1,351 


9 


1,342 


1 


1,340.1 



1 Preliminary. 

2 f.o.b. — free on board. 

3 POL — Petroleum, oil, and lubricants. 

4 c.i.f. — Cost, insurance, and freight. 



Source: Based on unpublished data provided by the Controloria General de la Republica 
de Panama, 1987. 



270 



Appendix A 



Table 17. Balance of Payments, 1980-85 
(in millions of United States dollars at current prices) 





1980 




1981 




1982 




1983 




1984 




1985* 


Exports of goods and 
























non-factor services 
























(NFS) 


1,644 


6 


1,734 


3 


1,769 


3 


1,774 


4 


1,742 


4 


1,819.6 


Imports of goods 
























and NFS 


-1,697 


6 


-1,854 


6 


-1,870 


5 


-1,697 





-1,679 


7 


-1,705.3 


RESOURCE 
























BALANCE 


-53 





-120 


3 


-101 


2 


77 


4 


62 


7 


114.3 


Net factor income .... 


-283 





-271 


2 


-349 


8 


-324 


2 


-375 


8 


-370.2 


Net current transfers . . 


14 


4 


31 


2 


45 


6 


44 


3 


89 


6 


83.3 


CURRENT ACCOUNT 
























BALANCE 


-321 


6 


-360 


3 


-405 


4 


-202 


5 


-223 


5 


-172.6 


Capital 
























Long-term capital 


























131 


6 


402 





492 


1 


386 





250 


4 


130.6 


Total other items 
























(net) 


186 


1 


-5 


1 


-85 


4 


-95 


4 


1 


7 


-24.9 


Net short-term 
























capital 


-90 


4 


37 


7 


-125 


8 


-177 


5 


-80 


3 


-229.1 


CAPITAL ACCOUNT 
























BALANCE 


227 


3 


434 


6 


280 


9 


113 


1 


171 


8 


-123.4 


Net errors and 


























-276 


5 


42 


8 


-40 


4 


-82 


1 


-67 


6 


-136.4 


Change in net 
























reserves 


3 


9 


-36 


6 


-1 


3 


-88 


1 


-14 


2 


134.7 



*Preliminary. 



Source: Based on unpublished data provided by the Controloria General de la Republica 
de Panama, 1987. 



271 



Panama: A Country Study 



Table 18. External Capital and Debt, 1980-85 
(in millions of United States dollars at current prices) 





1980 




1 QR1 
iyoi 




1982 










1 QQ± 






Public and publicly guaranteed 


























external debt 


2,283. 


4 


2,441 


.3 


2,926. 


7 


3 


.146. 


5 


3,229. 


7 


3,275.6 


Official creditors 


581. 


2 


682 


.2 


830. 


5 


1 


,006. 





1.078. 


9 


1,144.3 






,j 


JJO 


o 

.o 


4-19 


9 




JJO . 


o 
J 


oou. 


A 

X 


74.1 n 






7 


515 


A 




O 
I 




447. 


7 


A 1 O 


5 


4-UJ. 5 




1 7f>9 


o 
z 




1 

. 1 


z.uyo. 


o 


o 
/ 


, 1 -±u. 


5 


9 1 


Q 


51 .5 


Suppliers 


35. 


.7 


29 


.2 


29. 


1 




27. 


1 


50. 


1 


42.5 


Financial markets 


1,666. 


5 


1,729 


.9 


2,067. 


1 


2 


.113. 


4 


2,100. 


7 


2.088.8 


IMF credit 2 


23. 


.1 


93 


.6 


84 







192. 


8 


271. 


1 


311.2 


TOTAL EXTERNAL 


























DEBT 


2.306. 


.5 


2,534 


.9 


3.010 


.7 


3 


.339 


3 


3,500. 


8 


3.586.8 


Percentage of total long-term 


























debt on concessional 


























terms 


12. 


2 


12. 


8 


11. 


8 




11. 


5 


11. 


7 


12.1 


(with variable interest rates) 


52. 


2 


51 


.1 


55. 


9 




57. 





57. 


7 


59.5 



1 Estimate. 



2 IMF — International Monetary Fund. 

Source: Based on unpublished data provided by the Controloria General de la Republica 
de Panama, 1987. 



Table 19. United States Military Aid and Sales to Panama, 
Fiscal Years 1980-86 
(in thousands of United States dollars) 



FMS Commercial 
Fiscal Year Deliveries 1 Arms Sales MAP 2 IMETP 3 



1980 187 29,241 3 270 

1981 154 752 n.a. 328 

1982 360 1,000 1 359 

1983 481 1,504 n.a. 466 

1984 546 1,800 n.a. 453 

1985 2,124 594 n.a. 575 

1986 12,488 560 n.a. 507 



n.a. — not available. 



1 FMS — Foreign Military Sales. 

2 MAP — Military Assistance Program. 

3 IMETP — International Military Education and Training Program. 

Source: Based on information from United States. Department of Defense. Security Assis- 
tance Agency, Foreign Military Sales, Foreign Military Construction Sales, and Military 
Assistance Facts, Washington, 1986. 



272 



Appendix B 



TEXTS OF THE PANAMA CANAL TREATIES 
WITH UNITED STATES SENATE MODIFICATIONS 

Panama Canal Treaty 

The United States of America and the Republic of Panama, Acting in the spirit 
of the Joint Declaration of April 3, 1964, by the Representatives of the Governments 
of the United States of America and the Republic of Panama, and of the Joint State- 
ment of Principles of February 7, 1974, initialed by the Secretary of State of the United 
States of America and the Foreign Minister of the Republic of Panama, and Acknowledg- 
ing the Republic of Panama's sovereignty over its territory, Have decided to terminate 
the prior Treaties pertaining to the Panama Canal and to conclude a new Treaty to 
serve as the basis for a new relationship between them and, accordingly, have agreed 
upon the following: 

ARTICLE I 

Abrogation of Prior Treaties and Establishment of a New Relationship 

1. Upon its entry into force, this Treaty terminates and supersedes: 

(a) The Isthmian Canal Convention between the United States of America and 
the Republic of Panama, signed at Washington, November 18, 1903; 

(b) The Treaty of Friendship and Cooperation signed at Washington, March 2, 
1936, and the Treaty of Mutual Understanding and Cooperation and the related 
Memorandum of Understandings Reached, signed at Panama, January 25, 1955, 
between the United States of America and the Republic of Panama; 

(c) All other treaties, conventions, agreements, and exchanges of notes between 
the United States of America and the Republic of Panama concerning the Panama 
Canal, which were in force prior to the entry into force of this Treaty; and 

(d) Provisions concerning the Panama Canal, which appear in other treaties, 
conventions, agreements, and exchanges of notes between the United States of America 
and the Republic of Panama, which were in force prior to the entry into force of this 
Treaty. 

2. In accordance with the terms of this Treaty and related agreements, the Repub- 
lic of Panama, as territorial sovereign, grants to the United States of America, for 
the duration of this Treaty, the rights necessary to regulate the transit of ships through 
the Panama Canal, and to manage, operate, maintain, improve, protect, and defend 
the Canal. The Republic of Panama guarantees to the United States of America the 
peaceful use of the land and water areas which it has been granted the rights to use 
for such purposes pursuant to this Treaty and related agreements. 

3. The Republic of Panama shall participate increasingly in the management and 
protection and defense of the Canal, as provided in this Treaty. 

4. In view of the special relationship established by this Treaty, the United States 
of America and the Republic of Panama shall cooperate to assure the uninterrupted 
and efficient operation of the Panama Canal. 

ARTICLE II 

Ratification, Entry Into Force, and Termination 

1 . The Treaty shall be subject to ratification in accordance with the constitutional 



273 



Panama: A Country Study 



procedures of the two Parties. The instruments of ratification of this Treaty shall be 
exchanged at Panama at the same time as the instruments of ratification of the Treaty 
Concerning the Permanent Neutrality and Operation of the Panama Canal, signed 
this date, are exchanged. This Treaty shall enter into force, simultaneously with the 
Treaty Concerning the Permanent Neutrality and Operation of the Panama Canal, 
six calendar months from the date of the exchange of the instruments of ratification. 
2. This Treaty shall terminate at noon, Panama time, December 31, 1999. 

ARTICLE III 

Canal Operation and Management 

1 . The Republic of Panama, as territorial sovereign, grants to the United States 
of America the rights to manage, operate, and maintain the Panama Canal, its com- 
plementary works, installations, and equipment and to provide for the orderly transit 
of vessels through the Panama Canal. The United States of America accepts the grant 
of such rights and undertakes to exercise them in accordance with this Treaty and 
related agreements. 

2. In carrying out the foregoing responsibilities, the United States of America may: 

(a) Use for the aforementioned purposes, without cost except as provided in this 
Treaty, the various installations and areas (including the Panama Canal) and waters, 
described in the Agreement in Implementation of this Article, signed this date, as 
well as such other areas and installations as are made available to the United States 
of America under this Treaty and related agreements, and take the measures neces- 
sary to ensure sanitation of such areas; 

(b) Make such improvements and alterations to the aforesaid installations and 
areas as it deems appropriate, consistent with the terms of this Treaty; 

(c) Make and enforce all rules pertaining to the passage of vessels through the 
Canal and other rules with respect to navigation and maritime matters, in accordance 
with this Treaty and related agreements. The Republic of Panama will lend its coopera- 
tion, when necessary, in the enforcement of such rules; 

(d) Establish, modify, collect, and retain tolls for the use of the Panama Canal, 
and other charges, and establish and modify methods of their assessment; 

(e) Regulate relations with employees of the United States Government; 

(f) Provide supporting services to facilitate the performance of its responsibili- 
ties under this Article; 

(g) Issue and enforce regulations for the exercise of the rights and responsibili- 
ties of the United States of America under this Treaty and related agreements. The 
Republic of Panama will lend its cooperation, when necessary, in the enforcement 
of such rules; and 

(h) Exercise any other right granted under this Treaty, or otherwise agreed upon 
between the two Parties. 

3. Pursuant to the foregoing grant of rights, the United States of America shall, 
in accordance with the terms of this Treaty and the provisions of United States law, 
carry out its responsibilities by means of a United States Government agency called 
the Panama Canal Commission, which shall be constituted by and in conformity with 
the laws of the United States of America. 

(a) The Panama Canal Commission shall be supervised by a Board composed 
of nine members, five of whom shall be nationals of the United States of America, 
and four of whom shall be Panamanian nationals proposed by the Republic of Panama 
for appointment to such positions by the United States of America in a timely manner. 

(b) Should the Republic of Panama request the United States of America to 
remove a Panamanian national from membership on the Board, the United States 
of America shall agree to such request. In that event, the Republic of Panama shall 



274 



Appendix B 



propose another Panamanian national for appointment by the United States of America 
to such position in a timely manner. In case of removal of a Panamanian member 
of the Board on the initiative of the United States of America, both Parties will con- 
sult in advance in order to reach agreement concerning such removal, and the Republic 
of Panama shall propose another Panamanian national for appointment by the United 
States of America in his stead. 

(c) The United States of America shall employ a national of the United States 
of America as Administrator of the Panama Canal Commission, and a Panamanian 
national as Deputy Administrator, through December 31, 1989. Beginning January 1, 
1990, a Panamanian national shall be employed as the Administrator and a national 
of the United States of America shall occupy the position of Deputy Administrator. 
Such Panamanian nationals shall be proposed to the United States of America by the 
Republic of Panama for appointment to such positions by the United States of America. 

(d) Should the United States of America remove the Panamanian national from 
his position as Deputy Administrator, or Administrator, the Republic of Panama shall 
propose another Panamanian national for appointment to such position by the United 
States of America. 

4. An illustrative description of the activities the Panama Canal Commission will 
perform in carrying out the responsibilities and rights of the United States of America 
under this Article is set forth at the Annex. Also set forth in the Annex are procedures 
for the discontinuance or transfer of those activities performed prior to the entry into 
force of this Treaty by the Panama Canal Company or the Canal Zone Government 
which are not to be carried out by the Panama Canal Commission. 

5. The Panama Canal Commission shall reimburse the Republic of Panama for 
the costs incurred by the Republic of Panama in providing the following public ser- 
vices in the Canal operation areas and in housing areas set forth in the Agreement 
in Implementation of Article III of this Treaty and occupied by both United States 
and Panamanian citizen employees of the Panama Canal Commission: police, fire 
protection, street maintenance, street lighting, street cleaning, traffic management, 
and garbage collection. The Panama Canal Commission shall pay the Republic of 
Panama the sum of ten million United States dollars (US$10,000,000) per annum 
for the foregoing services. It is agreed that every three years from the date that this 
Treaty enters into force, the costs involved in furnishing said services shall be reex- 
amined to determine whether adjustment of the annual payment should be made 
because of inflation and other relevant factors affecting the cost of such services. 

6. The Republic of Panama shall be responsible for providing, in all areas com- 
prising the former Canal Zone, services of a general jurisdictional nature such as cus- 
toms and immigration, postal services, courts, and licensing, in accordance with this 
Treaty and related agreements. 

7. The United States of America and the Republic of Panama shall establish a 
Panama Canal Consultative Committee, composed of an equal number of high-level 
representatives of the United States of America and the Republic of Panama, and 
which may appoint such subcommittees as it may deem appropriate. This Commit- 
tee shall advise the United States of America and the Republic of Panama on matters 
of policy affecting the Canal's operation. In view of both Parties' special interest in 
the continuity and efficiency of the Canal operation in the future, the Committee shall 
advise on matters such as general tolls policy, employment and training policies to 
increase the participation of Panamanian nationals in the operation of the Canal, and 
international policies on matters concerning the Canal. The Committee's recommen- 
dations shall be transmitted to the two Governments, which shall give such recom- 
mendations full consideration in the formulation of such policy decisions. 

8. In addition to the participation of Panamanian nationals at high management 
levels of the Panama Canal Commission, as provided for in paragraph 3 of this Article, 



275 



Panama: A Country Study 



there shall be growing participation of Panamanian nationals at all other levels and 
areas of employment in the aforesaid commission, with the objective of preparing, 
in an orderly and efficient fashion, for the assumption by the Republic of Panama 
of full responsibility for the management, operation, and maintenance of the Canal 
upon the termination of this Treaty. 

9. The use of the areas, waters, and installations with respect to which the United 
States of America is granted rights pursuant to this Article, and the rights and legal 
status of United States Government agencies and employees operating in the Repub- 
lic of Panama pursuant to this Article, shall be governed by Agreement in Implemen- 
tation of this Article, signed this date. 

10. Upon entry into force of this Treaty, the United States Government agencies 
known as the Panama Canal Company and the Canal Zone Government shall cease 
to operate within the territory of the Republic of Panama that formerly constituted 
the Canal Zone. 

ARTICLE IV 

Protection and Defense 

1 . The United States of America and the Republic of Panama commit themselves 
to protect and defend the Panama Canal. Each Party shall act, in accordance with 
its constitutional processes, to meet the danger resulting from an armed attack or other 
actions which threaten the security of the Panama Canal or of ships transiting it. 

2. For the duration of this Treaty, the United States of America shall have primary 
responsibility to protect and defend the Canal. The rights of the United States of 
America to station, train, and move military forces within the Republic of Panama 
are described in the Agreement in Implementation of this Article, signed this date. 
The use of areas and installations and the legal status of the armed forces of the United 
States of America in the Republic of Panama shall be governed by the aforesaid 
Agreement. 

3. In order to facilitate the participation and cooperation of the armed forces of 
both Parties in the protection and defense of the Canal, the United States of America 
and the Republic of Panama shall establish a Combined Board comprised of an equal 
number of senior military representatives of each Party. These representatives shall 
be charged by their respective governments with consulting and cooperating on all 
matters pertaining to the protection and defense of the Canal, and with planning for 
actions to be taken in concert for that purpose. Such combined protection and defense 
arrangements shall not inhibit the identity or lines of authority of the armed forces 
of the United States of America or the Republic of Panama. The Combined Board 
shall provide for coordination and cooperation concerning such matters as: 

(a) The preparation of contingency plans for the protection and defense of the 
Canal based upon the cooperative efforts of the armed forces of both Parties; 

(b) The planning and conduct of combined military exercises; and 

(c) The conduct of United States and Panamanian military operations with respect 
to the protection and defense of the Canal. 

4. The Combined Board shall, at five-year intervals throughout the duration of 
this Treaty, review the resources being made available by the two Parties for the pro- 
tection and defense of the Canal. Also, the Combined Board shall make appropriate 
recommendations to the two Governments respecting projected requirements, the 
efficient utilization of available resources of the two Parties, and other matters of mutual 
interest with respect to the protection and defense of the Canal. 

5. To the extent possible consistent with its primary responsibility for the protec- 
tion and defense of the Panama Canal, the United States of America will endeavor 
to maintain its armed forces in the Republic of Panama in normal times at a level 



276 



Appendix B 



not in excess of that of the armed forces of the United States of America in the territory 
of the former Canal Zone immediately prior to the entry into force of this Treaty. 

ARTICLE V 

Principle of Non-intervention 

Employees of the Panama Canal Commission, their dependents, and designated 
contractors of the Panama Canal Commission, who are nationals of the United States 
of America, shall respect the laws of the Republic of Panama and shall abstain from 
any activity incompatible with the spirit of this Treaty. Accordingly, they shall abstain 
from any political activity in the Republic of Panama as well as from any interven- 
tion in the internal affairs of the Republic of Panama. The United States of America 
shall take all measures within its authority to ensure that the provisions of this Article 
are fulfilled. 

ARTICLE VI 

Protection of the Environment 

1 . The United States of America and the Republic of Panama commit themselves 
to implement this Treaty in a manner consistent with the protection of the natural 
environment of the Republic of Panama. To this end, they shall consult and coop- 
erate with each other in all appropriate ways to ensure that they shall give due regard 
to the protection and conservation of the environment. 

2. A Joint Commission on the Environment shall be established with equal represen- 
tation from the United States and the Republic of Panama, which shall periodically 
review the implementation of this Treaty and shall recommend as appropriate to the 
two Governments ways to avoid or, should this not be possible, to mitigate the adverse 
environmental impacts which might result from their respective actions pursuant to 
the Treaty. 

3. The United States of America and the Republic of Panama shall furnish the 
Joint Commission on the Environment complete information on any action taken in 
accordance with this Treaty which, in the judgment of both, might have a significant 
effect on the environment. Such information shall be made available to the Commis- 
sion as far in advance of the contemplated action as possible to facilitate the study 
by the Commission of any potential environmental problems and to allow for con- 
sideration of the recommendation of the Commission before the contemplated action 
is carried out. 

ARTICLE VII 

Flags 

1 . The entire territory of the Republic of Panama, including the areas the use of 
which the Republic of Panama makes available to the United States of America pur- 
suant to this Treaty and related agreements, shall be under the flag of the Republic 
of Panama, and consequently such flag always shall occupy the position of honor. 

2. The flag of the United States of America may be displayed, together with the 
flag of the Republic of Panama, at the headquarters of the Panama Canal Commis- 
sion, at the site of the Combined Board, and as provided in the Agreement in Imple- 
mentation of Article IV of this Treaty. 

3. The flag of the United States of America also may be displayed at other places 
and on some occasions, as agreed by both Parties. 



277 



Panama: A Country Study 



ARTICLE VIII 

Privileges and Immunities 

1 . The installations owned or used by the agencies or instrumentalities of the United 
States of America operating in the Republic of Panama pursuant to this Treaty and 
related agreements, and their official archives and documents, shall be inviolable. 
The two Parties shall agree on procedures to be followed in the conduct of any crimi- 
nal investigation at such locations by the Republic of Panama. 

2 . Agencies and instrumentalities of the Government of the United States of America 
operating in the Republic of Panama pursuant to this Treaty and related agreements 
shall be immune from the jurisdiction of the Republic of Panama. 

3. In addition to such other privileges and immunities as are afforded to employees 
of the United States Government and their dependents pursuant to this Treaty, the 
United States of America may designate up to twenty officials of the Panama Canal 
Commission who, along with their dependents, shall enjoy the privileges and immu- 
nities accorded to diplomatic agents and their dependents under international law 
and practice. The United States of America shall furnish to the Republic of Panama 
a list of the names of said officials and their dependents, identifying the positions they 
occupy in the Government of the United States of America, and shall keep such list 
current at all times. 

ARTICLE IX 

Applicable Laws and Law Enforcement 

1. In accordance with the provisions of this Treaty and related agreements, the 
law of the Republic of Panama shall apply in the areas made available for the use 
of the United States of America pursuant to this Treaty. The law of the Republic 
of Panama shall be applied to matters or events which occurred in the former Canal 
Zone prior to the entry into force of this Treaty only to the extent specifically provided 
in prior treaties and agreements. 

2. Natural or juridical persons who, on the date of entry into force of this Treaty, 
are engaged in business or non-profit activities at locations in the former Canal Zone 
may continue such business or activities at those locations under the same terms and 
conditions prevailing prior to the entry into force of this Treaty for a thirty-month 
transition period from its entry into force. The Republic of Panama shall maintain 
the same operating conditions as those applicable to the aforementioned enterprises 
prior to the entry into force of this Treaty in order that they may receive licenses 
to do business in the Republic of Panama subject to their compliance with the require- 
ments of its law. Thereafter, such persons shall receive the same treatment under the 
law of the Republic of Panama as similar enterprises already established in the rest 
of the territory of the Republic of Panama without discrimination. 

3. The rights of ownership, as recognized by the United States of America, enjoyed 
by natural or juridical private persons in buildings and other improvements to real 
property located in the former Canal Zone shall be recognized by the Republic of 
Panama in conformity with its laws. 

4. With respect to buildings and other improvements to real property located in 
the Canal operating areas, housing areas, or other areas subject to the licensing proce- 
dure established in Article IV of the Agreement in Implementation of Article III of 
this Treaty, the owners shall be authorized to continue using the land upon which 
their property is located in accordance with the procedures established in that Article. 

5. With respect to buildings and other improvements to real property located in 
areas of the former Canal Zone to which the aforesaid licensing procedure is not 
applicable, or may cease to be applicable during the lifetime or upon termination of 
this Treaty, the owners may continue to use the land upon which their property is 



278 



Appendix B 



located, subject to the payment of a reasonable charge to the Republic of Panama. 
Should the Republic of Panama decide to sell such land, the owners of the buildings 
or other improvements located thereon shall be offered a first option to purchase such 
land at a reasonable cost. In the case of non-profit enterprises, such as churches and 
fraternal organizations, the cost of purchase will be nominal in accordance with the 
prevailing practice in the rest of the territory of the Republic of Panama. 

6. If any of the aforementioned persons are required by the Republic of Panama 
to discontinue their activities or vacate their property for public purposes, they shall 
be compensated at fair market value by the Republic of Panama. 

7. The provisions of paragraphs 2-6 above shall apply to natural or juridical per- 
sons who have been engaged in business or non-profit activities at locations in the 
former Canal Zone for at least six months prior to the date of signature of this Treaty. 

8. The Republic of Panama shall not issue, adopt, or enforce any law, decree, 
regulation, or international agreement or take any other action which purports to 
regulate or would otherwise interfere with the exercise on the part of the United States 
of America of any right granted under this Treaty or related agreements. 

9. Vessels transiting the Canal, and cargo, passengers, and crews carried on such 
vessels shall be exempt from any taxes, fees, or other charges by the Republic of 
Panama. However, in the event such vessels call at a Panamanian port, they may 
be assessed charges thereto, such as charges for services provided to the vessel. The 
Republic of Panama may also require the passengers and crew disembarking from 
such vessels to pay such taxes, fees, and charges as are established under Panamanian 
law for persons entering its territory. Such taxes, fees, and charges shall be assessed 
on a nondiscriminatory basis. 

10. The United States of America and the Republic of Panama will cooperate in 
taking such steps as may from time to time be necessary to guarantee the security 
of the Panama Canal Commission, its property, its employees and their dependents, 
and their property, the Forces of the United States of America and the members thereof, 
the civilian component of the United States Forces, the dependents of members of 
the Forces and civilian component, and their property, and the contractors of the 
Panama Canal Commission and of the United States Forces, their dependents, and 
their property. The Republic of Panama will seek from its Legislative Branch such 
legislation as may be needed to carry out the foregoing purposes and to punish any 
offenders. 

1 1 . The Parties shall conclude an agreement whereby nationals of either State, who 
are sentenced by the courts of the other State, and who are not domiciled therein, 
may elect to serve their sentences in their State of nationality. 

ARTICLE X 

Employment With the Panama Canal Commission 

1 . In exercising its rights and fulfilling its responsibilities as the employer, the United 
States of America shall establish employment and labor regulations which shall con- 
tain the terms, conditions, and prerequisites for all categories of employees of the 
Panama Canal Commission. These regulations shall be provided to the Republic of 
Panama prior to their entry into force. 

2. (a) The regulations shall establish a system of preference when hiring employees, 
for Panamanian applicants possessing the skills and qualifications required for employ- 
ment by the Panama Canal Commission. The United States of America shall endeavor 
to ensure that the number of Panamanian nationals employed by the Panama Canal 
Commission in relation to the total number of its employees will conform to the propor- 
tion established for foreign enterprises under the law of the Republic of Panama. 



279 



Panama: A Country Study 



(b) The terms and conditions of employment to be established will in general 
be no less favorable to persons already employed by the Panama Canal Company 
or Canal Zone Government prior to the entry into force of this Treaty, than those 
in effect immediately prior to that date. 

3. (a) The United States of America shall establish an employment policy for the 
Panama Canal Commission that shall generally limit the recruitment of personnel 
outside the Republic of Panama to persons possessing requisite skills and qualifica- 
tions which are not available in the Republic of Panama. 

(b) The United States of America will establish training programs for Panama- 
nian employees and apprentices in order to increase the number of Panamanian nation- 
als qualified to assume positions with the Panama Canal Commission, as positions 
become available. 

(c) Within five years from the entry into force of this Treaty, the number of United 
States nationals employed by the Panama Canal Commission who were previously 
employed by the Panama Canal Company shall be at least twenty percent less than 
the total number of United States nationals working for the Panama Canal Company 
immediately prior to the entry into force of this Treaty. 

(d) The United States of America shall periodically inform the Republic of 
Panama, through the Coordinating Committee, established pursuant to the Agree- 
ment in Implementation of Article III of this Treaty, of available positions within 
the Panama Canal Commission. The Republic of Panama shall similarly provide the 
United States of America any information it may have as to the availability of Panama- 
nian nationals claiming to have skills and qualifications that might be required by 
the Panama Canal Commission, in order that the United States of America may take 
this information into account. 

4. The United States of America will establish qualification standards for skills, 
training, and experience required by the Panama Canal Commission. In establish- 
ing such standards, to the extent they include a requirement for a professional license, 
the United States of America, without prejudice to its right to require additional profes- 
sional skills and qualifications, shall recognize the professional licenses issued by the 
Republic of Panama. 

5. The United States of America shall establish a policy for the periodic rotation, 
at a maximum of every five years, of United States citizen employees and other non- 
Panamanian employees, hired after the entry into force of this Treaty. It is recog- 
nized that certain exceptions to the said policy of rotation may be made for sound 
administrative reasons, such as in the case of employees holding positions requiring 
certain non-transferable or non-recruitable skills. 

6. With regard to wages and fringe benefits, there shall be no discrimination on 
the basis of nationality, sex, or race. Payments by the Panama Canal Commission 
of additional remuneration, or the provision of other benefits, such as home leave 
benefits, to United States nationals employed prior to entry into force of this Treaty, 
or to persons of any nationality, including Panamanian nationals who are thereafter 
recruited outside of the Republic of Panama and who change their place of residence, 
shall not be considered to be discrimination for the purpose of this paragraph. 

7. Persons employed by the Panama Canal Commission or Canal Zone Govern- 
ment prior to the entry into force of this Treaty, who are displaced from their employ- 
ment as a result of the discontinuance by the United States of America of certain 
activities pursuant to this Treaty, will be placed by the United States of America, 
to the maximum extent feasible, in other appropriate jobs with the Government of 
the United States in accordance with United States Civil Service regulations. For such 
persons who are not United States nationals, placement efforts will be confined to 
United States Government activities located within the Republic of Panama. Like- 
wise, persons previously employed in activities for which the Republic of Panama 



280 



Appendix B 



assumes responsibility as a result of this Treaty will be continued in their employ- 
ment to the maximum extent feasible by the Republic of Panama. The Republic of 
Panama shall, to the maximum extent feasible, ensure that the terms and conditions 
of employment applicable to personnel employed in the activities for which it assumed 
responsibility are not less favorable than those in effect immediately prior to the entry 
into force of this Treaty. Non-United States nationals employed by the Panama Canal 
Company or Canal Zone Government prior to the entry into force of this Treaty who 
are involuntarily separated from their positions because of the discontinuance of an 
activity by reason of this Treaty, who are not entitled to an immediate annuity under 
the United States Civil Service Retirement System, and for whom continued employ- 
ment in the Republic of Panama by the Government of the United States of America 
is not practicable, will be provided special job placement assistance by the Republic 
of Panama for employment in positions for which they may be qualified by experience 
and training. 

8. The Parties agree to establish a system whereby the Panama Canal Commis- 
sion may, if deemed mutually convenient or desirable by the two Parties, assign cer- 
tain employees of the Panama Canal Commission, for a limited period of time, to 
assist in the operation of activities transferred to the responsibility of the Republic 
of Panama as a result of this Treaty or related agreements. The salaries and other 
costs of employment of any such persons assigned to provide such assistance shall 
be reimbursed to the United States of America by the Republic of Panama. 

9. (a) The right of employees to negotiate collective contracts with the Panama 
Canal Commission is recognized. Labor relations with employees of the Panama Canal 
Commission shall be conducted in accordance with forms of collective bargaining estab- 
lished by the United States of America after consultation with employee unions. 

(b) Employee unions shall have the right to affiliate with international labor 
organizations. 

10. The United States of America will provide an appropriate early optional retire- 
ment program for all persons employed by the Panama Canal Company or Canal 
Zone Government immediately prior to the entry into force of this Treaty. In this 
regard, taking into account the unique circumstances created by the provisions of 
this Treaty, including its duration, and their effect upon such employees, the United 
States of America shall, with respect to them: 

(a) determine that conditions exist which invoke applicable United States law 
permitting early retirement annuities and apply such law for a substantial period of 
the duration of the treaty; 

(b) seek special legislation to provide more liberal entitlement to, and calcula- 
tion of, retirement annuities than is currently provided for by law. 

ARTICLE XI 

Provisions for the Transition Period 

1 . The Republic of Panama shall reassume plenary jurisdiction over the former 
Canal Zone upon entry into force of this Treaty and in accordance with its terms. 
In order to provide for an orderly transition to the full application of the jurisdictional 
arrangements established by this Treaty and related agreements, the provisions of 
this Article shall become applicable upon the date this Treaty enters into force, and 
shall remain in effect for thirty calendar months. The authority granted in this Arti- 
cle to the United States of America for this transition period shall supplement, and 
is not intended to limit, the full application and effect of the rights and authority granted 
to the United States of America elsewhere in this Treaty and in related agreements. 

2. During this transition period, the criminal and civil laws of the United States 
of America shall apply concurrently with those of the Republic of Panama in certain 



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Panama: A Country Study 



of the areas and installations made available for the use of the United States of America 
pursuant to this Treaty, in accordance with the following provisions: 

(a) The Republic of Panama permits the authorities of the United States of 
America to have the primary right to exercise criminal jurisdiction over United States 
citizen employees of the Panama Canal Commission and their dependents, and mem- 
bers of the United States Forces and civilian component and their dependents, in the 
following cases: 

(i) for any offense committed during the transition period within such areas 
and installations, and 

(ii) for any offense committed prior to that period in the former Canal Zone. 
The Republic of Panama shall have the primary right to exercise jurisdiction over 

all other offenses committed by such persons, except as otherwise agreed. 

(b) Either Party may waive its primary right to exercise jurisdiction in a specific 
case or category of cases. 

3. The United States of America shall retain the right to exercise jurisdiction in 
criminal cases relating to offenses committed prior to the entry into force of this Treaty 
in violation of the laws applicable in the former Canal Zone. 

4. For the transition period, the United States of America shall retain police authority 
and maintain a police force in the aforementioned areas and installations. In such 
areas, the police authorities of the United States of America may take into custody 
any person not subject to their primary jurisdiction if such person is believed to have 
committed or to be committing an offense against applicable laws or regulations, and 
shall promptly transfer custody to the police authorities of the Republic of Panama. 
The United States of America and the Republic of Panama shall establish joint police 
patrols in agreed areas. Any arrests conducted by a joint patrol shall be the responsi- 
bility of the patrol member or members representing the Party having primary juris- 
diction over the person or persons arrested. 

5. The courts of the United States of America and related personnel, functioning 
in the former Canal Zone immediately prior to the entry into force of this Treaty, 
may continue to function during the transition period for the judicial enforcement 
of the jurisdiction to be exercised by the United States of America in accordance with 
this Article. 

6. In civil cases, the civilian courts of the United States of America in the Republic 
of Panama shall have no jurisdiction over new cases of a private civil nature, but 
shall retain full jurisdiction during the transition period to dispose of any civil cases, 
including admiralty cases, already instituted and pending before the courts prior to 
the entry into force of this Treaty. 

7. The laws, regulations, and administrative authority of the United States of 
America applicable in the former Canal Zone immediately prior to the entry into force 
of this Treaty shall, to the extent not inconsistent with this Treaty and related agree- 
ments, continue in force for the purpose of the exercise by the United States of America 
of law enforcement and judicial jurisdiction only during the transition period. The 
United States of America may amend, repeal, or otherwise change such laws, regula- 
tions, and administrative authority. The two Parties shall consult concerning procedural 
and substantive matters relative to the implementation of this Article, including the 
disposition of cases pending at the end of the transition period and, in this respect, 
may enter into appropriate agreements by an exchange of notes or other instrument. 

8. During this transition period, the United States of America may continue to 
incarcerate individuals in the areas and installations made available for the use of 
the United States of America by the Republic of Panama pursuant to this Treaty 
and related agreements, or to transfer them to penal facilities in the United States 
of America to serve their sentences. 



282 



Appendix B 



ARTICLE XII 

A Sea-Level Canal or a Third Lane of Locks 

1 . The United States of America and the Republic of Panama recognize that a sea- 
level canal may be important for international navigation in the future. Consequently, 
during the duration of this Treaty, both Parties commit themselves to study jointly 
the feasibility of a sea-level canal in the Republic of Panama, and in the event they 
determine that such a waterway is necessary, they shall negotiate terms, agreeable 
to both Parties, for its construction. 

2. The United States of America and the Republic of Panama agree on the following: 

(a) No new interoceanic canal shall be constructed in the territory of the Repub- 
lic of Panama during the duration of this Treaty, except in accordance with the pro- 
visions of this Treaty, or as the two Parties may otherwise agree; and 

(b) During the duration of this Treaty, the United States of America shall not 
negotiate with third States for the right to construct an interoceanic canal on any other 
route in the Western Hemisphere, except as the two Parties may otherwise agree. 

3. The Republic of Panama grants to the United States of America the right to 
add a third lane of locks to the existing Panama Canal. This right may be exercised 
at any time during the duration of this Treaty, provided that the United States of 
America has delivered to the Republic of Panama copies of the plans for such con- 
struction. 

4. In the event the United States of America exercises the right granted in para- 
graph 3 above, it may use for that purpose, in addition to the areas otherwise made 
available to the United States of America pursuant to this Treaty, such other areas 
as the two Parties may agree upon. The terms and conditions applicable to Canal 
operating areas made available by the Republic of Panama for the use of the United 
States of America pursuant to Article III of this Treaty shall apply in a similar man- 
ner to such additional areas. 

5. In the construction of the aforesaid works, the United States of America shall 
not use nuclear excavation techniques without the previous consent of the Republic 
of Panama. 

ARTICLE XIII 

Property Transfer and Economic Participation by the Republic of Panama 

1 . Upon termination of this Treaty, the Republic of Panama shall assume total 
responsibility for the management, operation, and maintenance of the Panama Canal, 
which shall be turned over in operating condition and free of liens and debts, except 
as the two Parties may otherwise agree. 

2. The United States of America transfers, without charge, to the Republic of 
Panama all right, title, and interest the United States of America may have with respect 
to all real property, including non-removable improvements thereon, as set forth below: 

(a) Upon the entry into force of this Treaty, the Panama Railroad and such 
property that was located in the former Canal Zone but that is not within the land 
and water areas the use of which is made available to the United States of America 
pursuant to this Treaty. However, it is agreed that the transfer on such date shall 
not include buildings and other facilities, except housing, the use of which is retained 
by the United States of America pursuant to this Treaty and related agreements, out- 
side such areas; 

(b) Such property located in an area or a portion thereof at such time as the 
use by the United States of America of such area or portion thereof ceases pursuant 
to agreement between the two Parties. 

(c) Housing units made available for occupancy by members of the Armed Forces 
of the Republic of Panama in accordance with paragraph 5(b) of Annex B to the 



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Panama: A Country Study 



Agreement in Implementation of Article IV of this Treaty at such time as such units 
are made available to the Republic of Panama. 

(d) Upon termination of this Treaty, all real property and non-removable 
improvements that were used by the United States of America for the purposes of 
this Treaty and related agreements and equipment related to the management, opera- 
tion, and maintenance of the Canal remaining in the Republic of Panama. 

3. The Republic of Panama agrees to hold the United States of America harmless 
with respect to any claims which may be made by third parties relating to rights, 
title, and interest in such property. 

4. The Republic of Panama shall receive, in addition, from the Panama Canal Com- 
mission a just and equitable return on the national resources which it has dedicated 
to the efficient management, operation, maintenance, protection, and defense of the 
Panama Canal, in accordance with the following: 

(a) An annual amount to be paid out of Canal operating revenues computed 
at a rate of thirty hundredths of a United States dollar (US$0.30) per Panama Canal 
net ton, or its equivalency, for each vessel transiting the Canal after the entry into 
force of this Treaty, for which tolls are charged. The rate of thirty hundredths of a 
United States dollar (US$0.30) per Panama Canal net ton, or its equivalency, will 
be adjusted to reflect changes in the United States wholesale price index for total 
manufactured goods during biennial periods. The first adjustment shall take place 
five years after entry into force of this Treaty, taking into account the changes that 
occurred in such price index during the preceding two years. Thereafter, successive 
adjustments shall take place at the end of each biennial period. If the United States 
of America should decide that another indexing method is preferable, such method 
shall be proposed to the Republic of Panama and applied if mutually agreed. 

(b) A fixed annuity of ten million United States dollars (US$10,000,000) to be 
paid out of Canal operating revenues. This amount shall constitute a fixed expense 
of the Panama Canal Commission. 

(c) An annual amount of up to ten million United States dollars (US$10,000,000) 
per year, to be paid out of Canal operating revenues to the extent that such revenues 
exceed expenditures of the Panama Canal Commission including amounts paid pur- 
suant to this Treaty. In the event Canal operating revenues in any year do not produce 
a surplus sufficient to cover this payment, the unpaid balance shall be paid from operat- 
ing surpluses in future years in a manner to be mutually agreed. 

ARTICLE XIV 

Settlement of Disputes 

In the event that any question should arise between the Parties concerning the inter- 
pretation of this Treaty or related agreements, they shall make every effort to resolve 
the matter through consultation in the appropriate committees established pursuant 
to this Treaty and related agreements, or, if appropriate, through diplomatic chan- 
nels. In the event the Parties are unable to resolve a particular matter through such 
means, they may, in appropriate cases, agree to submit the matter to conciliation, 
mediation, arbitration, or such other procedure for the peaceful settlement of the dis- 
pute as they may mutually deem appropriate. 

DONE at Washington, this 7th day of September, 1977, in duplicate, in the English 
and Spanish languages, both texts being equally authentic. 

ANNEX 

Procedures for the Cessation or Transfer of Activities Carried Out by the Panama 
Canal Company and the Canal Zone Government and Illustrative List of the Func- 
tions That May Be Performed by the Panama Canal Commission 



284 



Appendix B 



1 . The laws of the Republic of Panama shall regulate the exercise of private eco- 
nomic activities within the areas made available by the Republic of Panama for the 
use of the United States of America pursuant to this Treaty. Natural or juridical per- 
sons who, at least six months prior to the date of signature of this Treaty, were legally 
established and engaged in the exercise of economic activities in accordance with the 
provisions of paragraphs 2-7 of Article IX of this Treaty. 

2. The Panama Canal Commission shall not perform governmental or commer- 
cial functions as stipulated in paragraph 4 of this Annex, provided, however, that 
this shall not be deemed to limit in any way the right of the United States of America 
to perform those functions that may be necessary for the efficient management, opera- 
tion, and maintenance of the Canal. 

3. It is understood that the Panama Canal Commission, in the exercise of the rights 
of the United States of America with respect to the management, operation, and mainte- 
nance of the Canal, may perform functions such as are set forth below by way of 
illustration: 

a. Management of the Canal enterprise. 

b. Aids to navigation in Canal waters and in proximity thereto. 

c. Control of vessel movement. 

d. Operation and maintenance of the locks. 

e. Tug service for the transit of vessels and dredging for the piers and docks 
of the Panama Canal Commission. 

f. Control of the water levels in Gatun, Alajuela (Madden), and Miraflores Lakes. 

g. Non-commercial transportation services in Canal waters. 

h. Meteorological and hydrographic services. 

i. Admeasurement. 

j. Non-commercial motor transport and maintenance, 
k. Industrial security through the use of watchmen. 
1. Procurement and warehousing, 
m. Telecommunications. 

n. Protection of the environment by preventing and controlling the spillage of 
oil and substances harmful to human or animal life and of the ecological equilibrium 
in areas used in operation of the Canal and the anchorages. 

o. Non-commercial vessel repair. 

p. Air conditioning services in Canal installations. 

q. Industrial sanitation and health services. 

r. Engineering design, construction, and maintenance of Panama Canal Com- 
mission installations. 

s. Dredging of the Canal channel, terminal ports, and adjacent waters. 

t. Control of the banks and stabilizing of the slopes of the Canal. 

u. Non-commercial handling of cargo on the piers and docks of the Panama 
Canal Commission. 

v. Maintenance of public areas of the Panama Canal Commission, such as parks 
and gardens. 

w. Generation of electric power. 

x. Purification and supply of water. 

y. Marine salvage in Canal waters. 

z. Such other functions as may be necessary or appropriate to carry out, in con- 
formity with this Treaty and related agreements, the rights and responsibilities of 
the United States of America with respect to the management, operation, and main- 
tenance of the Panama Canal. 

4. The following activities and operations carried out by the Panama Canal Com- 
pany and the Canal Zone Government shall not be carried out by the Panama Canal 
Commission, effective upon the dates indicated herein: 



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Panama: A Country Study 



(a) Upon the date of entry into force of this Treaty: 

(i) Wholesale and retail sales, including those through commissaries, food 
stores, department stores, optical shops, and pastry shops; 

(ii) The production of food and drink, including milk products and bak- 
ery products; 

(iii) The operation of public restaurants and cafeterias and the sale of arti- 
cles through vending machines; 

(iv) The operation of movie theaters, bowling alleys, pool rooms, and other 
recreational and amusement facilities for the use of which a charge is payable; 

(v) The operation of laundry and dry cleaning plants other than those oper- 
ated for official use; 

(vi) The repair and service of privately owned automobiles or the sale of petro- 
leum or lubricants thereto, including the operation of gasoline stations, repair garages, 
and tire repair and recapping facilities, and the repair and service of other privately 
owned property, including appliances, electronic devices, boats, motors, and furniture; 

(vii) The operation of cold storage and freezer plants other than those oper- 
ated for official use; 

(viii) The operation of freight houses other than those operated for official use; 

(ix) The operation of commercial services to and supply of privately owned 
and operated vessels, including the constitution of vessels, the sale of petroleum and 
lubricants, and the provision of water, tug services not related to the Canal or other 
United States Government operations, and repair of such vessels, except in situa- 
tions where repairs may be necessary to remove disabled vessels from the Canal; 

(x) Printing services other than for official use; 

(xi) Maritime transportation for the use of the general public; 

(xii) Health and medical services provided to individuals, including hospi- 
tals, leprosariums, veterinary, mortuary, and cemetery services; 

(xiii) Educational services not for professional training, including schools 
and libraries; 

(xiv) Postal services; 

(xv) Immigration, customs, and quarantine controls, except those measures 
necessary to ensure the sanitation of the Canal; 

(xvi) Commercial pier and dock services, such as the handling of cargo and 
passengers; and 

(xvii) Any other commercial activity of a similar nature, not related to the 
management, operation, or maintenance of the Canal. 

(b) Within thirty calendar months from the date of entry into force of this Treaty, 
governmental services such as: 

(i) Police; 

(ii) Courts; and 

(iii) Prison system. 

5. (a) With respect to those activities or functions described in paragraph 4 above, 
or otherwise agreed upon by the two Parties, which are to be assumed by the Govern- 
ment of the Republic of Panama or by private persons subject to its authority, the 
two Parties shall consult prior to the discontinuance of such activities or functions 
by the Panama Canal Commission to develop appropriate arrangements for the orderly 
transfer and continued efficient operation or conduct thereof. 

(b) In the event that appropriate arrangements cannot be arrived at to ensure 
the continued performance of a particular activity or function described in paragraph 4 
above which is necessary to the efficient management, operation, or maintenance of 
the Canal, the Panama Canal Commission may, to the extent consistent with the other 
provisions of this Treaty and related agreements, continue to perform such activity 
or function until such arrangements can be made. 



286 



Appendix B 



United States Senate Modifications (Incorporated Into the 
June 1978 Instruments of Ratification) 

(a) RESERVATIONS 

(1) Pursuant to its adherence to the principle of nonintervention, any action taken 
by the United States of America in the exercise of its rights to assure that the Panama 
Canal shall remain open, neutral, secure, and accessible, pursuant to the provisions 
of the Panama Canal Treaty, the Treaty Concerning the Permanent Neutrality and 
Operation of the Panama Canal, and the resolutions of ratification thereto, shall be 
only for the purpose of assuring that the Canal shall remain open, neutral, secure, 
and accessible, and shall not have as its purpose or be interpreted as a right of inter- 
vention in the internal affairs of the Republic of Panama or interference with its political 
independence or sovereign integrity. 

(2) The instruments of ratification of the Panama Canal Treaty to be exchanged 
by the United States of America and the Republic of Panama shall each include pro- 
visions whereby each Party agrees to waive its rights and release the other Party from 
its obligations under paragraph 2 of Article XII of the Treaty. 

(3) Notwithstanding any provision of the Treaty, no funds may be drawn from the 
Treasury of the United States of America for payments under paragraph 4 of Article 
XIII without statutory authorization. 

(4) Any accumulated unpaid balance under paragraph 4(c) of Article XIII of the 
Treaty at the date of termination of the Treaty shall be payable only to the extent 
of any operating surplus in the last year of the duration of the Treaty, and nothing 
in such paragraph may be construed as obligating the United States of America to 
pay, after the date of the termination of the Treaty, any such unpaid balance which 
shall have accrued before such date. 

(5) Exchange of the instruments of ratification of the Panama Canal Treaty and 
of the Treaty Concerning the Permanent Neutrality and Operation of the Panama 
Canal shall not be effective earlier than March 31, 1979, and such Treaties shall not 
enter into force prior to October 1, 1979, unless legislation necessary to implement 
the provisions of the Panama Canal Treaty shall have been enacted by the Congress 
of the United States of America before March 31, 1979. 

(6) After the date of entry into force of the Treaty, the Panama Canal Commission 
shall, unless otherwise provided by legislation enacted by the Congress of the United 
States of America, be obligated to reimburse the Treasury of the United States of 
America, as nearly as possible, for the interest cost of the funds or other assets directly 
invested in the Commission by the Government of the United States of America and 
for the interest cost of the funds or other assets directly invested in the predecessor 
Panama Canal Company by the Government of the United States of America and 
not reimbursed before the date of entry into force of the Treaty. Such reimbursement 
for such interest costs shall be made at a rate determined by the Secretary of the Trea- 
sury of the United States of America and at annual intervals to the extent earned, 
and if not earned, shall be made from subsequent earnings. For purposes of this reser- 
vation, the phrase "funds or other assets directly invested" shall have the same meaning 
as the phrase "net direct investment" has under section 62 of title 2 of the Canal 
Zone Code. 

(b) UNDERSTANDINGS 

(1) Before the first day of the three-year period beginning on the date of entry into 
force of the Treaty and before each three-year period following thereafter, the two 
Parties shall agree upon the specific levels and quality of services, as are referred to 
in paragraph 5 of Article III of the Treaty, to be provided during the following three- 



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Panama: A Country Study 



year period and, except for the first three-year period, on the reimbursement to be 
made for the costs of such services, such services to be limited to such as are essential 
to the effective functioning of the Canal operating areas and the housing areas referred 
to in paragraph 5 of Article III. If payments made under paragraph 5 of Article III 
for the preceding three-year period, including the initial three-year period, exceed 
or are less than the actual costs to the Republic of Panama for supplying, during such 
period, the specific levels and quality of services agreed upon, then the Panama Canal 
Commission shall deduct from or add to the payment required to be made to the Repub- 
lic of Panama for each of the following three years one-third of such excess or deficit, 
as the case may be. There shall be an independent and binding audit, conducted by 
an auditor mutually selected by both Parties, of any costs of services disputed by the 
two Parties pursuant to the reexamination of such costs provided for in this under- 
standing. 

(2) Nothing in paragraph 3, 4, or 5 of Article IV of the Treaty may be construed 
to limit either the provisions of the first paragraph of Article IV providing that each 
Party shall act, in accordance with its constitutional processes, to meet danger threaten- 
ing the security of the Panama Canal, or the provisions of paragraph 2 of Article IV 
providing that the United States of America shall have primary responsibility to pro- 
tect and defend the Canal for the duration of the Treaty. 

(3) Nothing in paragraph 4(c) of Article XIII of the Treaty shall be construed to 
limit the authority of the United States of America, through the United States Govern- 
ment agency called the Panama Canal Commission, to make such financial decisions 
and incur such expenses as are reasonable and necessary for the management, opera- 
tion, and maintenance of the Panama Canal. In addition, toll rates established pur- 
suant to paragraph 2(d) of Article III need not be set at levels designed to produce 
revenues to cover the payment to the Republic of Panama described in paragraph 
4(c) of Article XIII. 

(4) Any agreement concluded pursuant to paragraph II of Article IX of the Treaty 
with respect to the transfer of prisoners shall be concluded in accordance with the 
constitutional processes of both Parties. 

(5) Nothing in the Treaty, in the Annex or Agreed Minute relating to the Treaty, 
or in any other agreement relating to the Treaty obligates the United States of America 
to provide any economic assistance, military grant assistance, security supporting 
assistance, foreign military sales credits, or international military education and training 
to the Republic of Panama. 

(6) The President shall include all reservations and understandings incorporated 
by the Senate in this resolution of ratification in the instrument of ratification to be 
exchanged with the Government of the Republic of Panama. 

TREATY CONCERNING THE PERMANENT NEUTRALITY AND OPERATION 
OF THE PANAMA CANAL 

The United States of America and the Republic of Panama have agreed upon the 
following: 

ARTICLE I 

The Republic of Panama declares that the Canal, as an international transit water- 
way, shall be permanently neutral in accordance with the regime established in this 
Treaty. The same regime of neutrality shall apply to any other international water- 
way that may be built either partially or wholly in the territory of the Republic of 
Panama. 



288 



Appendix B 



ARTICLE II 

The Republic of Panama declares the neutrality of the Canal in order that both 
in time of peace and in time of war it shall remain secure and open to peaceful transit 
by the vessels of all nations on terms of entire equality, so that there will be no dis- 
crimination against any nation, or its citizens or subjects, concerning the conditions 
or charges of transit, or for any other reason, and so that the Canal, and therefore 
the Isthmus of Panama, shall not be the target of reprisals in any armed conflict between 
other nations of the world. The foregoing shall be subject to the following requirements: 

(a) Payment of tolls and other charges for transit and ancillary services, provided 
they have been fixed in conformity with the provisions of Article III (c); 

(b) Compliance with applicable rules and regulations, provided such rules and 
regulations are applied in conformity with the provisions of Article III; 

(c) The requirement that transiting vessels commit no acts of hostility while in 
the Canal; and 

(d) Such other conditions and restrictions as are established by this Treaty. 

ARTICLE III 

1. For purposes of the security, efficiency, and proper maintenance of the Canal, 
the following rules shall apply: 

(a) The Canal shall be operated efficiently in accordance with conditions of transit 
through the Canal, and rules and regulations that shall be just, equitable, and reason- 
able, and limited to those necessary for safe navigation and efficient, sanitary opera- 
tion of the Canal; 

(b) Ancillary services necessary for transit through the Canal shall be provided; 

(c) Tolls and other charges for transit and ancillary services shall be just, reasona- 
ble, equitable, and consistent with the principles of international law; 

(d) As a pre-condition of transit, vessels may be required to establish clearly the 
financial responsibility and guarantees for payment of reasonable and adequate indemni- 
fication, consistent with international practice and standards, for damages resulting from 
acts or omissions of such vessels when passing through the, Canal. In the case of vessels 
owned or operated by a State or for which it has acknowledged responsibility, a certifica- 
tion by that State that it shall observe its obligations under international law to pay 
for damages resulting from the act or omission of such vessels when passing through 
the Canal shall be deemed sufficient to establish such financial responsibility; 

(e) Vessels of war and auxiliary vessels of all nations shall at all times be entitled 
to transit the Canal, irrespective of their internal operation, means of propulsion, ori- 
gin, destination, or armament, without being subjected, as a condition of transit, to 
inspection, search, or surveillance. However, such vessels may be required to certify 
that they have complied with all applicable health, sanitation, and quarantine regula- 
tions. In addition, such vessels shall be entided to refuse to disclose their internal opera- 
tion, origin, armament, cargo, or destination. However, auxiliary vessels may be required 
to present written assurances, certified by an official at a high level of the government 
of the State requesting the exemption, that they are owned or operated by that govern- 
ment and in this case are being used only on government non-commercial service. 

2. For the purposes of this Treaty, the terms "Canal," "vessel of war," "aux- 
iliary vessel," "internal operation," "armament," and "inspection" shall have the 
meanings assigned them in Annex A to this Treaty. 

ARTICLE IV 

The United States of America and the Republic of Panama agree to maintain the 
regime of neutrality established in this Treaty, which shall be maintained in order 



289 



Panama: A Country Study 



that the Canal shall remain permanently neutral, notwithstanding the termination 
of any other treaties entered into by the two Contracting Parties. 

ARTICLE V 

After the termination of the Panama Canal Treaty, only the Republic of Panama 
shall operate the Canal and maintain military forces, defense sites, and military instal- 
lations within its national territory. 

ARTICLE VI 

1 . In recognition of the important contributions of the United States of America 
and of the Republic of Panama to the construction, operation, maintenance, and pro- 
tection and defense of the Canal, vessels of war and auxiliary vessels of those nations 
shall, notwithstanding any other provisions of this Treaty, be entitled to transit the 
Canal irrespective of their internal operation, means of propulsion, origin, destina- 
tion, armament, or cargo carried. Such vessels of war and auxiliary vessels will be 
entitled to transit the Canal expeditiously. 

2. The United States of America, so long as it has responsibility for the operation 
of the Canal, may continue to provide the Republic of Colombia toll-free transit through 
the Canal for its troops, vessels, and materials of war. Thereafter, the Republic of 
Panama may provide the Republic of Colombia and the Republic of Costa Rica with 
the right of toll-free transit. 

ARTICLE VII 

1 . The United States of America and the Republic of Panama shall jointly sponsor 
a resolution in the Organization of American States opening to accession by all nations 
of the world the Protocol to this Treaty whereby all the signatories will adhere to the 
objective of this Treaty, agreeing to respect the regime of neutrality set forth herein. 

2. The Organization of American States shall act as the depositary for this Treaty 
and related instruments. 

ARTICLE VIII 

This Treaty shall be subject to ratification in accordance with the constitutional 
procedures of the two Parties. The instruments of ratification of this Treaty shall be 
exchanged at Panama at the same time as the instruments of ratification of the Panama 
Canal Treaty, signed this date, are exchanged. This Treaty shall enter into force, 
simultaneously with the Panama Canal Treaty, six calendar months from the date 
of the exchange of the instruments of ratification. 

DONE at Washington, this 7th day of September, 1977, in the English and Span- 
ish languages, both texts being equally authentic. 

ANNEX A 

1. "Canal" includes the existing Panama Canal, the entrances thereto, and the 
territorial seas of the Republic of Panama adjacent thereto, as defined on the map 
annexed hereto (Annex B), 1 and any other interoceanic waterway in which the United 
States of America is a participant or in which the United States of America has par- 
ticipated in connection with the construction or financing, that may be operated wholly 
or partially within the territory of the Republic of Panama, the entrances thereto, 
and the territorial seas adjacent thereto. 



1 Not printed here. 



290 



Appendix B 



2. "Vessel of war" means a ship belonging to the naval forces of a State, and bear- 
ing the external marks distinguishing warships of its nationality, under the command 
of an officer duly commissioned by the government and whose name appears in the 
Navy List, and manned by a crew which is under regular naval discipline. 

3. "Auxiliary vessel" means any ship, not a vessel of war, that is owned or operated 
by a State and used, for the time being, exclusively on government non-commercial 
service. 

4. "Internal operation" encompasses all machinery and propulsion systems, as well 
as the management and control of the vessel, including its crew. It does not include 
the measures necessary to transit vessels under the control of pilots while such vessels 
are in the Canal. 

5. "Armament" means arms, ammunition, implements of war, and other equip- 
ment of a vessel which possesses characteristics appropriate for use for warlike purposes. 

6. "Inspection" includes on-board examination of vessel structure, cargo, arma- 
ment, and internal operation. It does not include those measures strictly necessary 
for admeasurement, nor those measures strictly necessary to assure safe, sanitary transit 
and navigation, including examination of deck and visual navigation equipment, nor 
in the case of live cargoes, such as cattle or other livestock, that may carry communicable 
diseases, those measures necessary to assure that health and sanitation requirements 
are satisfied. 



United States Senate Modifications (Incorporated Into the June 1978 
Instruments of Ratification) 

(a) AMENDMENTS 

(1) At the end of Article IV, insert the following: 

"A correct and authoritative statement of certain rights and duties of the Par- 
ties under the foregoing is contained in the Statement of Understanding issued by 
the Government of the United States of America on October 14, 1977, and by the 
Government of the Republic of Panama on October 18, 1977, which is hereby incor- 
porated as an integral part of this Treaty, as follows: 

"Under the Treaty Concerning the Permanent Neutrality and Operation of 
the Panama Canal (the Neutrality Treaty), Panama and the United States have the 
responsibility to assure that the Panama Canal will remain open and secure to ships 
of all nations. The correct interpretation of this principle is that each of the two coun- 
tries shall, in accordance with their respective constitutional processes, defend the Canal 
against any threat to the regime of neutrality, and consequently shall have the right 
to act against any aggression or threat directed against the Canal or against the peaceful 
transit of vessels through the Canal. 

"This does not mean, nor shall it be interpreted as, a right of intervention of 
the United States in the internal affairs of Panama. Any United States action will be 
directed at insuring that the Canal will remain open, secure, and accessible, and it shall 
never be directed against the territorial integrity or political independence of Panama." 

(2) At the end of the first paragraph of Article VI, insert the following: 

"In accordance with the Statement of Understanding mentioned in Article IV 
above: The Neutrality Treaty provides that the vessels of war and auxiliary vessels 
of the United States and Panama will be entitled to transit the Canal expeditiously. 
This is intended, and it shall so be interpreted, to assure the transit of such vessels 
through the Canal as quickly as possible, without any impediment, with expedited 
treatment, and in case of need or emergency, to go to the head of the line of vessels 
in order to transit the Canal rapidly." 



291 



Panama: A Country Study 



(b) CONDITIONS 

(1) Notwithstanding the provisions of Article V or any other provision of the Treaty, 
if the Canal is closed, or its operations are interfered with, the United States of America 
and the Republic of Panama shall each independently have the right to take such 
steps as each deems necessary, in accordance with its constitutional processes, including 
the use of military force in the Republic of Panama, to reopen the Canal or restore 
the operations of the Canal, as the case may be. 

(2) The instruments of ratification of the Treaty shall be exchanged only upon the 
conclusion of a Protocol of Exchange, to be signed by authorized representatives of 
both Governments, which shall constitute an integral part of the Treaty documents 
and which shall include the following: 

"Nothing in the Treaty shall preclude the Republic of Panama and the United 
States of America from making, in accordance with their respective constitutional 
processes, any agreement or arrangement between the two countries to facilitate per- 
formance at any time after December 31, 1999, of their responsibilities to maintain 
the regime of neutrality established in the Treaty, including agreements or arrange- 
ments for the stationing of any United States military forces or the maintenance of 
defense sites after that date in the Republic of Panama that the Republic of Panama 
and the United States of America may deem necessary or appropriate." 

(c) RESERVATIONS 

(1) Before the date of entry into force of the Treaty, the two Parties shall begin 
to negotiate for an agreement under which the American Battle Monuments Com- 
mission would, upon the date of entry into force of such agreement and thereafter, 
administer, free of all taxes and other charges and without compensation to the Republic 
of Panama and in accordance with the practices, privileges, and immunities associated 
with the administration of cemeteries outside the United States of America by the 
American Battle Monuments Commission, including the display of the flag of the 
United States of America, such part of Corozal Cemetery in the former Canal Zone 
as encompasses the remains of citizens of the United States of America. 

(2) The flag of the United States of America may be displayed, pursuant to the 
provisions of paragraph 3 of Article VII of the Panama Canal Treaty, at such part 
of Corozal Cemetery in the former Canal Zone as encompasses the remains of citizens 
of the United States of America. 

(3) The President— 

(A) shall have announced, before the date of entry into force of the Treaty, his 
intention to transfer, consistent with an agreement with the Republic of Panama, and 
before the date of termination of the Panama Canal Treaty, to the American Battle 
Monuments Commission the administration of such part of Corozal Cemetery as en- 
compasses the remains of citizens of the United States of America; and 

(B) shall have announced, immediately after the date of exchange of instruments 
of ratification, plans, to be carried out at the expense of the Government of the United 
States of America, for — 

(i) removing, before the date of entry into force of the Treaty, the remains 
of citizens of the United States of America from Mount Hope Cemetery to such part 
of Corozal Cemetery as encompasses such remains, except that the remains of any 
citizen whose next of kin objects in writing to the Secretary of the Army not later 
than three months after the date of exchange of the instruments of ratification of the 
Treaty shall not be removed; and 

(ii) transporting to the United States of America for reinterment, if the next 
of kin so requests, not later than thirty months after the date of entry into force of 
the Treaty, any such remains encompassed by Corozal Cemetery and, before the date 



292 



Appendix B 



of entry into force of the Treaty, any remains removed from Mount Hope Cemetery 
pursuant to subclause (i); and 

(C) shall have fully advised, before the date of entry into force of the Treaty, 
the next of kin objecting under clause (B) (i) of all available options and their impli- 
cations. 

(4) To carry out the purposes of Article III of the Treaty of assuring the security, 
efficiency, and proper maintenance of the Panama Canal, the United States of America 
and the Republic of Panama, during their respective periods of responsibility for Canal 
operation and maintenance, shall, unless the amount of the operating revenues of 
the Canal exceeds the amount needed to carry out the purposes of such Article, use 
such revenues of the Canal only for purposes consistent with the purposes of Article III. 

(d) UNDERSTANDINGS 

(1) Paragraph 1 (c) of Article III of the Treaty shall be construed as requiring, before 
any adjustment in tolls for use of the Canal, that the effects of any such toll adjust- 
ment on the trade patterns of the two Parties shall be given full consideration, includ- 
ing consideration of the following factors in a manner consistent with the regime of 
neutrality: 

(A) the costs of operating and maintaining the Panama Canal; 

(B) the competitive position of the use of the Canal in relation to other means 
of transportation; 

(C) the interests of both Parties in maintaining their domestic fleets; 

(D) the impact of such an adjustment on the various geographic areas of each 
of the two Parties; and 

(E) the interests of both Parties in maximizing their international commerce. 
The United States of America and the Republic of Panama shall cooperate in 
exchanging information necessary for the consideration of such factors. 

(2) The agreement "to maintain the regime of neutrality established in this Treaty" 
in Article IV of the Treaty means that either of the two Parties to the Treaty may, 
in accordance with its constitutional processes, take unilateral action to defend the 
Panama Canal against any threat, as determined by the Party taking such action. 

(3) The determination of "need or emergency" for the purpose of any vessel of 
war or auxiliary vessel of the United States of America or the Republic of Panama 
going to the head of the line of vessels in order to transit the Panama Canal rapidly 
shall be made by the nation operating such vessel. 

(4) Nothing in the Treaty, in Annex A or B thereto, in the Protocol relating to 
the Treaty, or in any other agreement relating to the Treaty, obligates the United 
States of America to provide any economic assistance, military grant assistance, security 
supporting assistance, foreign military sales credits, or international military educa- 
tion and training to the Republic of Panama. 

(5) The President shall include all amendments, conditions, reservations, and 
understandings incorporated by the Senate in this resolution of ratification in the 
instrument of ratification to be exchanged with the Government of the Republic of 
Panama. 



293 



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303 



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Chapter 4 

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305 



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307 



Panama: A Country Study 



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Financial Times [London], June-December 1987; Foreign Broad- 
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December 1987; La Nacion Internacional [San Jose, Costa Rica], 
April-May 1983; La Prensa Digest [Panama City], December 1987; 
La Republica [Panama City], December 1987; Latin America Regional 
Reports: Mexico and Central America Report [London], September 

1983- December 1987; Latin American Weekly Report [London], April 

1984- December 1987; New York Times, January 1986-December 
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Union, February 1986; St. Louis Post and Dispatch, July-September 
1987; Tico Times [San Jose, Costa Rica], December 1987; and 
Washington Post, June-December 1987.) 

Chapter 5 

Anguizola, Gustave. The Panama Canal: Isthmian Political Stability from 
1821 to 1977 . Washington: University Press of America, 1977. 



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International Institute for Strategic Studies. The Military Balance 
1986-1987. London: Garden City Press, 1986. 

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1977. 

LaFeber, Walter. The Panama Canal: The Crisis in Historical Perspec- 
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Liss, Sheldon B. The Canal: Aspects of United States -Panamanian 
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McAlister, Lyle N., et al. The Military in Latin American Sociopoliti- 
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McDonald, Vincent P. "The Panama Canal for Panamanians," 
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Coral Gables, Florida, 1975. 

Norman, Albert. The Panama Canal Treaties of 1977: A Political Evalua- 
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Pereira, Renato. Panama: fuerzas armadas y poUtica. Panama City: 
Nueva Universidad, 1979. 

Peters, Joan. "Panama's Genial Despot," Harper's Magazine, 
No. 256, April 1978, 61-68, 70. 

Pippin, Larry LaRae. The Remdn Era: An Analysis of a Decade of Events 
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"Military Reformism in Panama: New Directions or Old 

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No. 3, October 1972, 45-63. 



309 



Panama: A Country Study 

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Stockholm International Peace Research Institute. World Armaments 
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Armed Services. Panama Canal Treaty Implementing Legislation. 
(Hearings, June 26-27, 1979.) Washington: GPO, 1979. 

United States. Congress. 99th, 2d Session. Senate. Committee on 
Foreign Relations. Subcommittee on Western Hemisphere 
Affairs. The Situation in Panama. (Hearings, March 10-April 21, 
1986.) Washington: GPO, 1986. 

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ber 1977. 

United States. Panama Canal Act of 1979. (Public Law 96-70.) 

Washington: GPO, 1979. 
Wesson, Robert (ed.). The Latin American Military Institution. New 

York: Praeger, 1986. 

(Various issues of the following publications were also used in 
the preparation of this chapter: Defensa [Panama City], December 
1979-December 1986; Central American Report [Guatemala City], 
September- November, 1986; Miami Herald, October 1985; and New 
York Times, May-July 1987.) 



311 



Glossary 



ADO — Alianza Democratica de Oposicion (Democratic Opposi- 
tion Alliance). Opposition alliance of three major parties and 
several smaller parties formed to contest the 1984 elections. 
Remained officially in place in late 1987. 

balboa (B) — Panama's monetary unit, in practice consisting only 
of coins. Official value is Bl equals US$1. United States cur- 
rency used for paper money. 

CCN — Crusada Civilista Nacional (National Civic Crusade). 
Business-led coalition that organized popular civic opposition 
to government and FDP {q. v.) in 1987 demonstrations and 
unrest. 

Central America — Region between Mexico and Panama includ- 
ing present-day Belize, Guatemala, Honduras, El Salvador, 
Nicaragua, and Costa Rica. 

CFZ — Colon Free Zone. Free-trade zone in Panama. Goods from 
foreign countries are landed and stored or repackaged there 
and shipped onward without being subject to Panama's cus- 
toms duties. 

Contadora peace process — A diplomatic initiative launched by a 
January 1983 meeting on Contadora Island off the Pacific coast 
of Panama, by which the "Core Four" mediator countries of 
Mexico, Venezuela, Colombia, and Panama sought to prevent 
through negotiations a regional conflagration among the Central 
American states of Guatemala, El Salvador, Honduras, Nicara- 
gua, and Costa Rica. In September 1984 the negotiating process 
produced a draft treaty, the Contadora Acta, which was judged 
acceptable by the government of Nicaragua but rejected by the 
other four Central American states concerned. The governments 
of Peru, Uruguay, Argentina, and Brazil formed a Contadora 
Support Group in 1985 in an effort to revitalize the faltering 
talks. The process was suspended unofficially in June 1986 when 
the Central American governments refused to sign a revised Acta. 
The Contadora process was effectively superseded by direct 
negotiations among the Central American states. 

DENI — Departamento Nacional de Investigaciones (National 
Department of Investigations). Undercover secret police. 

Eurocurrency — A country's currency on deposit outside the coun- 
try. Most Eurocurrency claims are Eurodollars, which are dollar 
claims on banks located outside the United States. The 
Eurocurrency market is a wholesale market. 



313 



Panama: A Country Study 

FDP — Fuerzas de Defensa de Panama (Panama Defense Forces). 
Panama's military forces. Includes former National Guard as 
well as all military and police forces. FDP commander was de 
facto head of government in late 1987. 

fiscal year (FY) — Calendar year. 

FRAMPO — Frente Amplio Popular (Broad Popular Front). Small 
left-of-center party that was part of pro-government coalition, 
UNADE (q.v.), in 1984 elections, but lost legal status by fail- 
ing to win 3 percent of total vote. 

GDP — gross domestic product. A measure of the total value of 
goods and services produced by the domestic economy during 
a given period, usually one year. Obtained by adding the value 
contributed by each sector of the economy in the form of profits, 
compensation to employees, and depreciation (consumption of 
capital). The income arising from investments and possessions 
owned abroad is not included, only domestic production. 
Hence, the use of the word ''domestic" to distinguish GDP 
from GNP (q.v.). 

GNP — gross national product. Total market value of all final goods 
and services produced by an economy during a year. Obtained 
by adding GDP (q.v.) and the income received from abroad 
by residents less payments remitted abroad to nonresidents. 

IMF — International Monetary Fund. Established along with the 
World Bank (q.v.) in 1945, the IMF is a specialized agency 
affiliated with the United Nations that takes responsibility for 
stabilizing international exchange rates and payments. The 
main business of the IMF is the provision of loans to its mem- 
bers when they experience balance-of-payment difficulties. 
These loans often carry conditions that require substantial 
internal economic adjustments by the recipients. 

mola — Literally, clothing, dress, or blouse in Cuna dialect, but has 
come to mean simply the single panel of a Cuna woman's 
appliqued blouse. The panels feature colorful, intricately 
stitched abstract or geometric designs; scenes of everyday Cuna 
life, lore, myths, legends, flora, and fauna; or ideas or images 
from the outside world. 

MOLIRENA — Movimiento Liberal Republicano Nacional (Na- 
tional Liberal Republican Movement). Pro-business coalition 
of several center-right political movements. Part of opposition 
coalition ADO (q.v.). 

offshore banking — Term applied to banking transactions conducted 
between participants located outside the country. Such trans- 
actions increased rapidly worldwide after the mid-1960s because 
of the growth and liquidity of Eurocurrency (q.v.) markets. 



314 



Glossary 



PALA — Partido Laborista Agrario (Labor and Agrarian Party, 
often referred to simply as the Labor Party). Despite title, gener- 
ally right-of-center, pro-business. Part of pro-government coa- 
lition, UNADE (q.v.). 

Panama Canal net ton — Measure used to assess tolls for the Panama 
Canal based on 100 cubic feet of a vessel's net earning capacity, 
usually meaning its cargo space. 

PAPO — Partido de Accion Popular (Popular Action Party). Minor 
independent party that contested 1984 elections, but lost legal 
status by failing to garner 3 percent of total vote. 

PDC — Partido Democrato Cristiano (Christian Democratic Party). 
Centrist opposition party. Part of opposition coalition, ADO 
(q.v.). 

PdP — Partido del Pueblo (People's Party). Far left, orthodox com- 
munist, pro-Moscow party. Ran candidates in 1984 elections, 
but lost legal status by failing to win 3 percent of total vote. 

PLN — Partido Liberal Nacional (National Liberal Party). Gener- 
ally right-of-center. Part of pro- government coalition, UNADE 
(q.v.). 

PNP — Partido Nacionalista Popular (Popular Nationalist Party). 
Minor party that contested 1984 elections, but lost legal status 
by failing to receive 3 percent of total vote. 

PP — Partido Panamenista (Panamenista Party). Small break-away 
faction of Panamenistas. Part of pro-government coalition, 
UNADE (q.v.), in 1984 elections, but lost legal status by fail- 
ing to win 3 percent of total vote. 

PPA — Partido Panamenista Autentico (Authentic Panamenista 
Party). Nation's leading opposition party. Strongly nationalist 
and populist. Part of opposition coalition, ADO (q.v.). Led by 
veteran politician Arnulfo Arias Madrid. 

PPP — Partido Panameno del Pueblo (Panamanian People's Party). 
Far left communist party. 

PR — Partido Republicano (Republican Party). Right-of-center 
party. Part of pro- government coalition, UNADE (q.v.). 

PRD — Partido Revolucionario Democratico (Democratic Revolu- 
tionary Party). Official government party founded by Torrijos. 
Part of pro-government coalition, UNADE (q.v.). 

Roosevelt Corollary — Policy enunciated by President Theodore 
Roosevelt in 1904 specifying that if a country in the Western 
Hemisphere failed to maintain internal order or to pay its inter- 
national debts, the United States could intervene with military 
force to rectify the situation. Policy was bitterly resented by 
Latin American nations. 



315 



Panama: A Country Study 



terms of trade — Number of units that must be given up for one 
unit of goods received by each party (e.g., nation; to a transac- 
tion. The terms of trade are said to move in favor of the party 
that gives up fewer units of goods than it did previously for one 
unit of goods received, and against the party that gives up more 
units of goods for one unit of goods received. In international 
economics, the concept of "terms of trade'" plays an important 
role in evaluating exchange relationships between nations. 

UNADE — Union Nacional Democratica (National Democratic 
Union). Pro-government coalition of six parties formed to con- 
test 1984 elections: remained officially in place in late 1987. 

World Bank — Informal name used to designate a group of three 
affiliated international institutions: the International Bank for 
Reconstruction and Development i'IBRDi. the International 
Development Association (IDA), and the International Finance 
Corporation (IFC). The IBRD, established in 1945. has the 
primary purpose of providing loans to developing countries for 
productive projects. The IDA. a legally separate loan fund admin- 
istered by the staff of the IBRD, was set up in 1960 to furnish 
credits to the poorest developing countries on much easier terms 
than those of conventional IBRD loans. The IFC. founded in 
1956. supplements the activities of the IBRD through loans and 
assistance designed specifically to encourage the growth of 
productive private enterprises in less developed countries. The 
president and certain senior officers of the IBRD hold the same 
positions in the IFC. The three institutions are owned by the 
governments of the countries that subscribe their capital. To par- 
ticipate in the World Bank group, member states must first belong 
to the IMF (q.v.). 

Yankee — Generally pejorative term used in Latin America to refer 
to United States citizens. 



316 



Index 



Academfa de Capacitacion Policial (Police 

Training Academy), 239 
ACAPOL. See Police Training Academy 
Acapulco, Mexico, 214-15 
Accion Communal (Community Action), 

30 

Act of Chapultepec (1945), 224 
Adams, John Quincy, 17 
Administrative Code, 253 
ADO. See Democratic Opposition Al- 
liance 

ADOC See Civic Democratic Opposition 

Alliance 
Aeroflot, 214 

agriculture, xvii, 126, 152, 152-58; agrar- 
ian reform, 152, 153-56; agricultural 
incentives law, 152; asentamientos , 155; 
bananas, 156; cash crops problems, 
99-100; coconut farming, 84; coffee, 
156, 158, 166; collective farming, 101; 
crops, 152, 156, 158, 166; education, 
47; equipment, 153; erosion, 153; ex- 
ports, 152; farmers, 70; fishing, 127, 
152, 159; forestry, 152, 153, 159; 
government assistance to farmers, 47; 
gross domestic product, 129-30, 152; 
imports , 152; juntas agr arias de production , 
155; labor force, 152; land reform, 132, 
155; livestock, 152; maize, 98; price 
controls, 152; production, 97-98; slash- 
and-burn agriculture, 87, 90, 97, 98, 
99, 101, 103, 153; social conditions, 
155-56; subsidies, 152; subsistence 
farming, 74, 104, 127, 153; trade re- 
strictions, 152 

air force, 219, 233 

airports, xviii, 144-45 

Alabama, 246 

Alaskan North Slope oil, 142, 145 
Albrook Air Force Base, 241 
alcalde, 85 

Alianza Democratica de Oposicion 
(ADO). See Democratic Opposition Al- 
liance 

Alianza Democratica de Oposicion Civica 
(Civic ADO or ADOC). See Civic 
Democratic Opposition Alliance 

Alianza Nacional de Oposicion. See Na- 
tional Opposition Alliance 



All American Pipeline, 145 

Alliance for Progress, 38, 101 

Almirante, xviii, 71, 87, 144 

Amador Guerrero, Manuel, 22, 24, 220 

American Express Bank, 150 

Ancon, 27, 235 

Antigua, 7 

Antigua del Darien, 7 

Antillean blacks, xvi, xxiv, 5, 20, 69, 77, 
79-80; education of, 80; and Guaymi, 
90; heritage, 79-80; in middle class, 
109-10; migrants, 102; religion, 80; 
restrictions of rights of, 195; social iso- 
lation of, 111; social mobility of, 109 

Antilles, 9 

Arango, Jose Augustin, 22 
Arawak, 6 

Archipielago de Bocas del Toro, 71 

Archipielago de las Perlas, 71 

Arco Galindo, Juan de, 41 

Ardito Barletta Vallarino, Nicolas, xxix, 
173, 195, 248, 257; administration of, 
63-64, 189; allegations of fraud in elec- 
tion of, 62-63, 190; and economy, 
63-64, 148; and labor code, 139; ouster 
of, 64, 208; presidential candidacy of, 
18, 62, 63; support for, 194 

Argentina, 125, 224 

Arias, Oscar, 211, 212 

Arias, Ricardo, 35 

Arias Calderon, Ricardo, xxxvii, 188, 
195-96 

Arias de Avila, Pedro, 7-8 

Arias Madrid, Arnulfo, xix, xxxv, 30, 
186; and 1964 elections, 41-42; and 
1968 elections; 42-43; and 1980 elec- 
tions, 187; and 1984 elections, 187; 
death of, xxxv, xxxvi; first presidential 
term of, 32, 174; and National Guard, 
43; and National Secret Police, 235; 
ouster of (1941), 32, 175; ouster of 
(1968), 43, 173, 185, 193-94; Panama 
Defense Forces opposition to, 197; and 
Panamenista Party, 41, 195, 196; popu- 
list nationalism of, 32, 192; presidency, 
32, 34; presidential candidacy of, 18, 
41-42, 63; return from exile, 58; and 
United States bases, 32-33 



317 



Panama: A Country Study 



Arias Madrid, Harmodio, 30, 32 
Arias Plan, 212 
arkar, 85 

armed forces (see also Ground Forces for 
Defense and National Security; Pan- 
ama Defense Forces), xx, 220; air force, 
219, 233; army, 28, 229-32; conscrip- 
tion, 237; and defense of Panama 
Canal, 232, 244-46, 246; enlisted per- 
sonnel, 238; enlistment, 237; evolution 
of, 220-24, 246; five-year plan, 238; 
joint exercises with United States, 244, 
245-46; manpower, 237-38; navy, 219, 
233-34; officers, 238; paramilitary role 
of, 246-47; police role of, 258; politi- 
cal role of, 220, 246-48; training, 
239-43; uniforms, 239 

Armitage, Richard, xxx 

army (see also Ground Forces for Defense 
and National Security; Panama 
Defense Forces), 28, 229-32 

Arnulfistas, 195 

Arnulfist Party, xxxvii 

Arosemena, Carlos C, 22 

Arosemena, Florencio H., 28, 229 

asentamientos , 155 

asiento, 11 

Aspinwall (see also Colon), 18 
Atlantic Panama, 75 
audiencias, 10, 14 

Authentic Liberal Party (Partido Liberal 
Autentico — PLA), xxxvi, xxxvii, 196 

Authentic Panamenista Party (Partido 
Panamenista Autentico — PPA), xix, 
58, 62, 195; and 1984 election results, 
189; and ban on political parties, 194; 
and Democratic Opposition Alliance, 
188; and preparations for 1989 
presidential election, xxxvi 

Axis aggression, 32 

Azucarera La Victoria, 158 



bachillerato (baccalaureate), 116 
bagasse, 165 

balance of payments, 133, 167-68 
balboa, xvii, xxiv, 31, 118, 125, 133 
Balboa, Vasco Nunez de, 3, 7 
banana plantations, 47, 75, 79, 81, 82; 

migrants on, 103 
"banana war," 156 
bananas, 130, 156, 158, 166; export of, 

127; Guaymf, 90; production, 127, 

156; tax on export of, 156 



Banco de la Nacion Argentina, 150 

Banco do Brasil, 150 

Banco Nacional de Panama (BNP). See 
National Bank of Panama 

Bank of America, 150 

Bank of Tokyo, 150 

banks and banking, xxvii, 127, 133, 134, 
148, 150; bank secrecy laws, 148, 208, 
248; effect of civil strife on, 191; for- 
eign banks, 48; money laundering, 151, 
220, 248; "narcodollars," 150; offshore 
banking, 48, 129, 148, 150-51 

Bar Association, 198 

Bastidas, Rodrigo de, 7 

Batallon de Ingeneria Militar. See Mili- 
tary Engineering Battalion 

Batallon de Policia Militar. See Military 
Police Battalion 

Batallon de Salud Militar. See Military 
Health Battalion 

Batallon de Transporte y Mantenimiento. 
See Transport Battalion 

Battalion 2000, 232, 245, 246, 258 

Bay of Panama, 15, 22 

Bazan family, 195 

Belgium, 166 

Benjamin Ruiz School for Noncommis- 
sioned Officers (Escuela de Suboficiales 
Benjamin Ruiz), 243 
Bethancourt, Romulo Escobar, 50 
Bi-National Labor Advisory Committee, 
37 

Biddle, Charles A., 19 
Bidlack-Mallarino Treaty (1846), 19, 21, 
23 

birth rate, 77, 104, 137 
"Black Fury" exercises, 245-46 
BNP. See National Bank of Panama 
Bocas del Toro Province, 41 , 46, 90, 243; 

health care in, 121; migration, 104; 

population, 77, 103 
Bogota, 22 
Bokata, 81 

Bolivar, Simon, 15, 16, 17 
Bolivia, 45 
Bourbon kings, 13 
Boyaca, 15 

Boyd, Aquilino, xxxvi, 50 
Boyd-Roosevelt Highway, 103, 144 
Brazil, 224 
Bribri, 81 

Broad Popular Front (Frente Amplio 
Popular— FRAMPO), 62, 188, 194 



318 



Index 



buccaneers, 12 
budget, 134 

Bunau-Varilla, Philippe, 3, 22, 23, 220 
Bunker, Ellsworth, 49 

Cabinet Council, 177, 178, 180 
caciques, 183 
Cadiz, Spain, 10, 13 
California gold rush, xxiii, 18 
Camino Real, xxiii, 9, 10 
campesinos: marriage, 95; men, 96; and 

politics, 45, 46; and religion, 112-14; 

selection of godparents, 97; women, 96 
Canada, 213 

Canal Zone {see also Panama Canal): Arias 
refuge in, 43; bases and sites outside of, 
34-35; bases in, 40; border, 37; as cam- 
paign issue, 41-42; Chiari-Kennedy 
meeting, 37-38; and constitution of 
1904, 174; defense of, 52; and disputes 
with United States, 24, 30, 37, 38-40, 
46; and the economy, 3, 107; em- 
ployees, 26, 37-38, 199; governor, 49; 
hospitals, 142; housing, 142; labor 
force, 80, 134-35, 199; military train- 
ing in, 54, 221, 241; and Panama 
Canal treaties, 51-53, 174; Pan- 
amanian control of, 51-52, 53, 57; and 
Panamanian merchants, 37; Pana- 
manian rights to, 4; and population 
density, 77; residents, 49; riots, 36, 37, 
39; schools, 142, 229; sovereignty issue, 
29; and student demonstrations, 200; 
transfer of control of, 51-52, 250; 
United States annuity, 31, 35, 40; 
United States jurisdiction over, xxv, 
3-4, 24, 28, 29, 30-31, 36, 49, 51-52, 
53, 174; United States-Panamanian 
flag issue, 37, 38-39; United States 
unions in, 199; and urban growth, 
106-7; wage policy, 35, 36, 38, 142; 
and World War II, 249 

Canal Zone Company, 49 

"Candela 87" exercise, 246 

Cape Horn, 14 

Capira, 104 

Carazo, Rodrigo, 211 

Carcel Modelo (Model Jail), 255-56 

Carib, 6 

Caribbean Basin, 164, 166 
Caribbean Basin Initiative (CBI), 147, 
166, 167, 213 



Caribbean states, 213 

Carta Organica, 88 

Cartagena, Colombia, 10, 15 

Carter, Jimmy: canal treaty negotiating 
team, 50; Panama Canal treaties, 51, 
55, 56, 57; Statement of Understand- 
ing, 55 

Carter, William A., 39 

Casas, Bartolome de las, 9 

Castilla del Oro, 7 

Castro Ruz, Fidel, 45, 221 

Cavalry Squadron (Escuadron de 
Caballeria), 231-32 

Cayman Islands, 151 

CBI. See Caribbean Basin Initiative 

CCN. See National Civic Crusade 

cedula (identity card), 235 

Celeron Oil Company, 147 

Cemaco Battalion, 232 

Cemento Bayano, 162 

Central America {see also Contadora peace 
process): Congress of Panama, 17; and 
defense of the Panama Canal, 258; 
migrants, 103; military training in, 
222, 241; relations with, 210-12 

Central American Common Market, 210 

Central American Defense Council, 210 

Central Bank of India, 148 

Central Isthmus, 74 

Central Panama, 75 

Centro de Instruccion Militar (CIM). See 
Military Training Center 

Centro Feminino de Rehabilitation. See 
Women's Rehabilitation Center 

Cerro Colorado: copper deposits, 162, 
163; copper project, 77, 94, 105 

CFZ. See Colon Free Zone 

Chaime, 104 

Chamber of Commerce, Industries, and 

Agriculture of Panama, 198-99 
Changuinola, 87 

Changuinola I Hydroelectric Project, 94 

Charles V (Spain), 9 

Chase Manhattan, 150 

Chepigana, 102 

Chiari, Roberto, 37, 42 

Chiari, Rodolfo, 195 

Chibcha, 6 

chic ha, 93 

Chile, 101, 224 

China, 213 

Chiricano, 75 

Chiriquf Grande, xviii 



319 



Panama: A Country Study 



Chiriqui Land Company, 156 
Chiriqm Province, 62, 75, 79, 103; 1984 
elections, 184; banana plantations in, 
103; copper mine in, 94, 105, 162; and 
crime, 256; geography, 75; Guaymi in, 
90; land use, 153; migration, 104; and 
national politics, 41, 46; ranches, 159; 
riots, 43; United States intervention in, 
28, 249 

Chitre, 75; population growth, 106 
Christian democratic parties, 196 
Choco, 6, 81, 84 

Christian Democratic Party (Partido 
Democrato Cristiano— PDC), 41, 213; 
and 1968 elections, 42; and 1980 elec- 
tions, 187; and 1984 elections, 189; and 
ban on political parties, 194; and 
Democratic Opposition Alliance, 62, 
188, 195-96; and Isthmian Workers' 
Central, 200; and National Opposition 
Front, 58; and preparations for 1989 
presidential election, xxxvi-xxxvii 

CIM. See Military Training Center 

cimarrones, 10, 14 

Citibank, 150 

citizenship requirements, 175 

Civic ADO. See Civic Democratic Oppo- 
sition Alliance 

Civic Democratic Opposition Alliance 
(Alianza Democratica de Oposicion 
Ci'vica— Civic ADO or ADOC), xxxvi- 
xxxvii 

civil-military relations, 174, 222, 246-48 

civil rights, 175, 251-52; suspension of, 
220; violations, 252-53 

civilian rule: pressures for return to, xxxv, 
173, 186, 196 

Clark Memorandum, 29 

Clayton-Bulwar Treaty (1850), 19, 22 

climate, xvi, 73-74; dry season, 152; tem- 
peratures, 73 

Coalicion de Liberacion Nacional (CO- 
LIN A). See National Liberation Coa- 
lition 

Coalicion Patriotica Nacional (CPN). See 
National Patriotic Coalition 

cocaine trade. See drug trafficking 

COCINA. See National Civilian Coor- 
dinating Committee 

Code Province, 75; migration, 104, 105; 
population, 102 

coconut farming, 84, 86 

coffee, 156, 158, 166 



Coiba Penal Colony, 253, 255 
Coiba tribes, 6 
Colegio del Istmo, 117 
Coleman, Simral, 25 
COLINA. See National Liberation Coa- 
lition 

Colombia: attempted secession of isthmus 
from, 17-18; border with, 70, 71, 81, 
176, 232; cattle production, 159; civil 
strife, 20-22; cocaine trade, xxx; and 
Congress of Panama, 17; Conservative 
Party, 20-21, 24, 192; and Contadora 
peace process, 211-12; as "Core Four" 
mediator, 174, 258; Cuna in, 82; en- 
croachments on Panamian territory by, 
229; energy production, 164; and 
French interest in Panama Canal, 
19-20; Gran Colombia, 16; highlands 
near, xv; independence from, xxv, 
21-22, 249; legal code, 250; Liberal 
Party, 20-21, 24, 192; migration from, 
84; relations with, 3, 212-13; transpor- 
tation systems to, xviii; treaty with the 
United States, 24; union with, 16 

Colon, 18, 74, 98, 242; and crime, 256; 
Liberal revolt, 21; manufacturing, 160; 
migration, 102, 104, 105, 106; National 
Department of Investigations, 235; 
night courts, 254; oil refinery, 164, 165; 
and the Panama Canal, xxiv, 25, 127; 
police, 234; population, 77, 103, 106-7; 
transportation systems, xviii, 18, 31, 
144 

Colon Free Zone (CFZ), xxvii, 147, 182, 
203, 212; exports, 147; gross domestic 
product, 147; imports, 147; improve- 
ments to, 132; services, 125, 147; world 
trade, 140, 147 

Colon Province, 6, 70, 75, 98; and crime, 
256; gross domestic product, 131; 
population, 103, 104-6, 

colonial period, 10-14 

Colonial Police, 25 

colonos, 102 

Columbus, Christopher, 7, 18 
comandanaa (commander), 231, 236 
Comandante Torrijos, 234 
comarca, 82 

Comarca de San Bias, 70, 74, 235; Cuna 
in, 6, 88, 228; local government, 178, 
183 

Combined Board, 52, 244 

Command and Special Operations School 



320 



Index 



(Escuela de Comando y Operaciones 

Especiales), 243 
Commission for the Study of Alternatives 

to the Panama Canal, 143-44, 206, 213 
communications, xviii, 144-45 
communist party, 59, 185 
Community Action (Accion Communal), 

30 

Community Police (Policfa Comunitaria), 
236 

Compama de Orden Publico. See Public 

Order Company 
companias de combate (combat companies), 

231 

companias de fusileros (rifle companies), 231 

companias de infanteria (infantry compa- 
nies), 229-31 

comptroller general, 182 

CONATO. See National Council of Or- 
ganized Workers 

CONEP. See National Free Enterprise 
Council 

Confederation of Workers of the Repub- 
lic of Panama, 199-200 

Congress of Panama, 17 

Consejo Nacional de Trabajadores Or- 
ganisados (CONATO). See National 
Council of Organized Workers 

Consejo Nacional de la Empresa Privada 
(CONEP). See National Free Enterprise 
Council 

Conservative Party, 24, 192 

constitution of 1904, 24, 174; Article 136, 
174 

constitution of 1941, 80, 174 
constitution of 1946, 32, 80, 174-75 
Constitution of 1972, xviii, 5, 46, 174, 175; 
amendments (1978), 57, 58, 177, 186; 
amendments (1983), 61, 175-76, 177, 
178, 187, 219; Article 27, 254-55; Ar- 
ticle 179, 215; Article 197, 254; Article 
232, 183; Article 249, 183; Article 268, 
178; Article 277, 175; and comptroller 
general, 182; and Electoral Tribunal, 
182; and foreign relations, 215; and the 
judicial system, 180-81, 251-52; and 
municipal government, 183; and the 
Panama Defense Forces, 225; and power 
of military, 196; and provincial govern- 
ment, 183; and public employees, 183; 
and religious freedom, 112; and resto- 
ration of civilian rule, 175; and role of 
the armed forces, 247 



Constitution of Cucuta, 1821, 16 

construction, 163-64 

Contadora Group, 212 

Contadora peace process, 174, 203, 
211-12, 258-59 

Contreras, Armando, 60 

Coordinador Civilista Nacional (CO- 
CINA). See National Civilian Coor- 
dinating Committee 

Cordillera Central, 73, 89, 94 

Cordillera de Talamanca, 71, 73 

"Core Four" mediators, 174, 258 

Corona, 232 

Corporacion Bananera del Atlantico, 156 

Corporacion de Desarrollo Minero Cerro 
Colorado, 162 

Corps of National Police, 220-21 

Correa, Mayin, 195 

corregidor, 184 

corregimiento , 70, 175, 183 

Costa Rica: 70, bananas, 156; border, 64, 
70, 71, 74, 75, 176, 243; discovery of 
body of Hugo Spadafora in, 189, 211, 
252; energy production, 164; highlands 
near, xv; labor costs, 138; Panamanian 
exports, 166; protection of border with, 
232; relations with, 211; transportation 
systems to, xviii; wages, 138 

Council of the Indies, 9 

coup attempt (1988), xxxiv 

coup of 1931, 28, 229 

coup of 1968, xxvii, 173, 185, 192, 222, 
235, 257 

courts, xviii-xix, 253-54; night courts, 
254; and Status-of-Forces Agreement, 
250 

CPN. See National Patriotic Coalition 

Credit Lyonnais, 150 

crime, 256-57; and Status-of-Forces 

Agreement, 250 
Criminal Code, 253 
criminal justice system, 253-54; appeals, 

254; criticism of, 254; and minors, 254; 

penalties, 253-54 
Cristobal, xviii, 27, 141-42, 145 
crops (see also bananas), 152, 156-58, 166 
Cruzada Civilista Nacional (CCN). See 

National Civic Crusade 
Cuba, xxx, xxxiv, 190; invasion from, 

222; and Nicaragua, 210; relations 

with, 45, 212, 221 
Cueva, 6 
Culebra, 26 



321 



Panama: A Country Study 



Cuna, 6, 25, 81, 82-89, 228-29; and 
Christianity, 87; congresses, 86; decla- 
ration of independence, 25; education, 
88; gatherings, 85-86; households, 
84-85; kinship, 85; landholding, 86; lo- 
cal government, 183; migrant workers, 
87; missionaries, 87; politics, 85-86; 
population, 82, 84; relations with out- 
siders, 84, 88; reserve, 88; role of men, 
85; role of women, 85, 86; of San Bias, 
84; slash-and-burn farming, 87; ten- 
sions with state, 88; villages, 85-86 

currency {see also balboa; "Panadollars"), 

xvii, xxiv, 125, 133, 167 

Customs Guard (Guardia Aduanera), 236 

dairy production, 158, 159 

Darien Peninsula, 101 

Darien Province, 232; bishopric, 14; In- 
dians in, 6, 7, 81, 82, 84; migration, 
102, 104; population, 74, 103; settle- 
ment of, 12 

David, 44; and crime, 256; infantry unit 
at, 231; manufacturing, 160; National 
Department of Investigations activity 
in, 235; opposition party control of, 
184; population growth, 106; railroad, 

xviii, 144 
Davis, Arthur, 208 
DeConcini Condition, 56, 207 
Delvalle family, 195 

Delvalle Henriquez, Eric Arturo, xxix, 
xxxi, xxxv; economic policies of, 
189-90; and electoral reforms, 182; and 
exiled leaders, 199; and the military, 
190, 191; Nicaraguan support for, 210; 
as president, 64, 195, 211, 213, 257; 

Democratic Opposition Alliance (Alian- 
za Democratica de Oposicion — ADO), 
188, 195-96 

Democratic Revolutionary Party (Parti- 
do Revolucionario Democratico — 
PRD), xix, xxxiv; alliances with other 
parties, xix, xxxvi, 62, 194; and 
Aristides Royo, 59-60; and composi- 
tion of cabinet, 177, 189, 190; creation 
of, 45, 173, 186; elections, xxxvi, 58, 
59, 61, 62, 187, 189; and foreign rela- 
tions, 215; and legalization of political 
parties, 194; and Legislative Assembly, 
178; and the military, 194, 196; and 
National Democratic Union, 188; and 



resignation of Nicolas Ardito Barletta 
Vallarino, 139; social composition of, 
194; and Socialist International, 194 
DENI. See National Department of Inves- 
tigations 

Departamento de Operaciones Marinas 
(Department of Marine Operations), 
233-34 

Departamento Nacional de Investiga- 
ciones (DENI). See National Depart- 
ment of Investigations 
Department of Corrections, 255 
Department of Environmental Health, 
119 

Department of Marine Operations 
(Departamento de Operaciones Mari- 
nas), 233-34 

Deutsche Sudamerikanische Bank, 150 

Diaz Herrera, Roberto, xxix, 197, 202, 
258; allegations by, 190, 191, 208, 258; 
open break with Noriega, 173 

Direccion Nacional de Transito Terres- 
tre (Traffic Police), 235-36 

Dominican Republic, 29, 138 

"Donoso 86" exercise, 246 

Drake, Francis, 11 

Drug Enforcement Administration, 248 
drug trafficking, xxx, 190, 208, 220, 248 
Dulles, John Foster, 36 
Duque Jaen, Carlos Alberto, xxxvi 

East Asia, 162 

economy (see also agriculture; services sec- 
tor), 125-69, 173; and the armed 
forces, 248; balance of payments, xvii, 
133, 167-68; banking, 148-51; budget, 
134; crisis (1988), xxxi-xxxiii; cur- 
rency, xvii, xxiv, 31, 125, 133, 167; 
current account balance, 167, 168; ef- 
fect of civil strife on, 191; external debt, 
xvii-xviii, xxvii, 48, 130, 165, 168, 169; 
fiscal policy, 134-36; foreign invest- 
ment, 168; geographic advantages, 
126; goods sector, 129; gross domestic 
product, xvii, 129; income distribution, 
139; inflation, 48, 125; and Latin 
America recession, 127; monetary poli- 
cy, 133, 134; and the Panama Canal, 
xxiv-xxv, 125, 139-44; per capita in- 
come, 125; policies of Eric Arturo 
Delvalle Henriquez, 189-90; policies of 
Nicolas Ardito Barletta Vallarino, 189; 



322 



Index 



post-World War II depression, 127; 
public-sector deficit, 130, 134; revenue, 
135, 136; role of government, 131-33; 
structural adjustment, 132, 139, 160, 
163; structure of, 126-30; taxes, 
134-36; Torrijos era, 130-31; trade, 
165-67; wage policy, 138-39 
Ecuador, 156, 167 

education, xvi, 115-18, 136; of Antillean 
blacks, 80; budget, 118; of Cuna, 88; 
farming skills, 47; of Indian tribes, 82; 
literacy rate, xvi, 115; local financial 
contribution to, 184; primary, 117-18; 
reforms, 47; rural, 100, 156; secondary, 

115- 16, 117-18; and social mobility, 
111; teacher training, 118; universal 
primary, 115, 116; university, 115, 

116- 17 
education tax, 138 

Edwin Fabrega Dam, 163, 165 

Eighth Military Police Company, 231 

Eisenmann, Roberto, Jr., 190, 202 

El Dorado, 7 

El Porvenir, 25 

El Salvador, 211, 222, 258 

elections, xxviii, xxxvi, xxxvii, 179; 
charges of fraud in, 40, 42, 62-63, 173, 
182, 188, 190, 257; demonstrations fol- 
lowing, 188-89; legislative, 58-59, 186, 
187; under military government, 46; 
municipal, 184; Panama Defense 
Forces manipulation of, 196-97; 
presidential, xxxvi, 186, 187; voter 
turnout, 41, 62 

Electoral Tribunal, xxxvi, 42, 175, 177, 
181-82, 188; and 1984 presidential 
election, 63; interference in electoral 
matters, 42; lack of independence of, 
xxxvii, 182; Marcos Aurelio Robles im- 
peachment proceedings, 43 

Eleta Almaran, Carlos, 195 

elite (see also oligarchy), xxv, 46, 108-9; 
and education, 108-9; and ethnic 
groups, 109; family names, 108; mar- 
riage, 95-96; opposition, xxx; political 
dominance of, 184, 192; and politics, 
109; and rural society, 101 

Emergency Employment Program, 137 

Endara, Guillermo, xxxvi-xxxvii 

energy, 164-65; charcoal, 165; coal 
reserves, 163; hydroelectricity, 164, 
165; petroleum, 164; sources, 165 

English Empire, 3 



entidades (entities), 233 
Escuadron de Caballena. See Cavalry 
Squadron 

Escuela de Comando y Operaciones 
Especiales (Command and Special 
Operations School), 243 
Escuela de Formacion de Guardias Na- 
cionales (National Guard School), 239 
Escuela de Formacion Feminina (School 

for Women's Training), 238 
Escuela de Polici'a (Police School), 239 
Escuela de Suboficiales Benjamin Ruiz 
(Benjamin Ruiz School for Noncom- 
missioned Officers), 243 
Escuela Pana-Jungla (Pana-Jungla 

School), 243 
Espriella, Ricardo de la, 58, 60, 61, 63 
Esquivel, Roderick, 188, 194-95 
ethnic groups (see also Antillean blacks; 
Cuna; Guaymi; Indian tribes), 77-80; 
Arabs, xxiv, 77; Asians, xxiv, 77; 
blacks, xxx, 109, 175; Caucasians, xvi, 
77-97; Chinese, xxiv, 77, 79, 110; Eu- 
ropeans, xxiv, 77; Greeks, xxiv, 77; 
Hispanic blacks, 79, 111; Hispanic In- 
dians, 79; Hispanic Panamanians, 80; 
Jews, xxiv, 77, 110; Lebanese, xxiv, 
77; lower class, 111; mestizos, xvi, 
xxiv, 77, 79, 84, 97, 101; in the mid- 
dle class, 109-10; North Americans, 
xxiv, 77; in Panama Defense Forces, 
238; tribal Indians, xvi, xxiv, 77; West 
Indians, 26, 33 
Eurocurrency, 148 
Exclusive Economic Zone, 71 
Export-Import Bank of the United States, 
55 

exports, xvii, 165-67 

Fabrega, Edwin, 15 
Falkland/Malvinas Islands, 214 
family life, 94-97; children, 96; godpar- 
ents, 96-97; marriage, 95-96 
family planning, 77 
Fascism, 32 

FDP. See Panama Defense Forces 
Federacion de Estudiantes Panamenos 

(FEP). See Federation of Panamanian 

Students 

Federacion Nacional de Asociaciones y 
Sindicatos de Empleados Publicos 
(FENASEP). See National Federation 



323 



Panama: A Country Study 



of Associations and Organizations of 
Public Employees 

Federal Republic of Germany (West Ger- 
many): Panamanian exports, 166; re- 
lations with, 213 

Federation of Panamanian Students (Fed- 
eracion de Estudiantes Panamenos — 
FEP), 201 

Female Force (Fuerza Feminina), 238 

FENASEP. See National Federation of 
Associations and Organizations of Pub- 
lic Employees 

FEP. See Federation of Panamanian Stu- 
dents 

Ferdinand, 7 

ferias (fairs): Portobelo, 11, 13, 14 
Fifth Military Police Company, 231 
Fifth Military Zone, 228 
First Infantry Company, 231 
First National Bank of Chicago, 150, 151 
First Panamanian Educational Assembly, 
115 

First Public Order Company (Dober- 

man), xx, 236, 258 
fiscal policy, 134-36; budget process, 134; 

expenditures, 136; revenues, 134-36 
fishing, 127, 152, 159; shrimp, 127, 130, 

159, 166 

Florez Aguilar, Florencio, 59, 60, 187 
Florida, 246 

FMS. See Foreign Military Sales program 

Ford, Gerald R., 50 

Ford, Guillermo, xxxvii 

foreign economic relations, 165-69, 203; 
balance of payments, 167-68; external 
debt, 130, 165, 168; trade, 165-67 

Foreign Military Sales (FMS) program, 
243 

foreign ministry, 215 

foreign relations (see also United States), 
xix, 203-16; Central America, 210-12; 
Colombia, 212-13; Costa Rica, 211; 
and Democratic Revolutionary Party, 
215; economic, 165-69, 203; economic 
summmit, 214-15; and Legislative As- 
sembly, 215; Panama Defense Forces 
dominance of, 215; role of president in, 
215 

forest, tropical, 98-99 

Forest Guard (Guardia Forestal), 236-37 

forestry, 152, 153, 159 

Fort Amador, 231, 234, 250 

Fort Benning, Georgia, 241 



Fort Bragg, North Carolina, 245 
Fort Cimarron, 232, 237, 241 
Fort Clayton, 250 
Fort Davis, 250 
Fort Espinar, 231 
Fort Sherman, 250 
forty-niners, 18 

Fourth Infantry Company, 231 
FRAMPO. See Broad Popular Front 
France, xxiii, 19-20, 126 
FRENO. See National Opposition Front 
Frente Amplio Popular (FRAMPO). See 

Broad Popular Front 
Frente Nacional de Oposicion (FRENO). 

See National Opposition Front 
Fuerza Aerea Panamena (Panamanian 

Air Force). See air force 
Fuerza Feminina (Female Force), 238 
Fuerzas de Defensa de Panama (FDP). See 

Panama Defense Forces 
Fuerzas de Policfa (Police Forces). See 

police 

Fuerzas Terrestres de Defensa y Seguridad 
Nacional. See Ground Forces for 
Defense and National Security 

Gaillard Cut, 144 
Gallegos, Hector, 201 
gambling, 134, 136, 151 
Gatun, 26 

Gatun Lake, 73, 74, 104, 140 
Gatun Locks, 26, 140 
GDP. See gross domestic product 
General Agreement on Tariffs and Trade, 
214 

General Council of State, 177 
General Omar Torrijos Herrera Interna- 
tional Airport (Tocumen International 
Airport), xviii, 144-45, 231 
General Tomas Herrera Military Insti- 
tute (Instituto Militar General Tomas 
Herrera), 241 
Generalized System of Preferences, 167 
geography, xv-xvi, 70-74; boundaries, 
71; continental divide, 71, 73, 75; con- 
tinental shelf, 71; ports, 71; provinces, 
70 

geology, 152, 154 

GNP. See gross national product 

Goethals, George Washington, 26 

gold, 10-11 

gold rush traffic, 18 



324 



Index 



Golfo de Chiriqui, 71 

Golfo de San Miguel, 73 

Gonzalez Revilla, Antonio, 42, 42-43 

Gonzalez Revilla, Nicolas, 50 

Good Neighbor Policy, 29 

Gorgas, William Crawford, 26 

"Gorgas gangs," 26 

government, local, 184 

government, municipal, 183-84 

government, national, xviii-xix, 176-83; 
agencies, 181-83; dissolution of legis- 
lature, 185; executive, 58, 176-78; 
legislature, 58, 61, 178-80; judiciary 
180-81; ministers of state, 178; role in 
economy, 131-33 

government, provincial, 183 

government employees, 181, 183, 198 

government services, 144 

Gran Colombia, 16 

Greater Panama City, 104 

Grenada, 213 

gross domestic product (GDP), xvii, xxiv, 
xxxviii, 125; agriculture, 129, 152; 
Colon Free Zone, 147; construction, 
160; energy, 160; external debt, 168; 
goods sector, 129; growth of, 127, 
130-31; imports, 167; industry, 129, 
159-60; manufacturing, 129, 159-60; 
mining, 159-60, 162; Panama Canal, 
140; public-sector deficit, 130, 134; 
services sector, 125, 129; taxes, 134; 
trans-isthmian oil pipeline, 145 

gross national product (GNP), 125; Pan- 
ama Canal, 49 

Ground Forces for Defense and National 
Security (Fuerzas Terrestres de Defensa 
y Seguridad Nacional), 229-32; Cav- 
alry Squadron, 231-32; combat battal- 
ions, 232; infantry companies, 229-31; 
support services, 232 

Guardia, Ernesto de la, 35, 36, 37, 39, 
41, 235 

Guardia, Ricardo Adolfo de la, 32, 33, 
175 

Guardia Aduanera (Customs Guard), 236 
Guardia Ferroviaria (Railroad Guard), 
236 

Guardia Forestal (Forest Guard), 236-37 
Guardia Nacional. See National Guard 
Guardia Penitenciaria (Penitentiary 

Guard), 236 
Guardia Portuaria (Port Guard), 236 
Guardia Presidencial (Presidential 

Guard), 236 



Guardianship Court for Minors (Tribunal 

Tutelar de Menores), 254 
Guatemala, 138 

Guaymi, 6, 81, 89-94; and Christianity, 
89; contact with outsiders, 90; educa- 
tion, 90; employment, 91; hamlets, 

91- 92; households, 92; hunting, 91; 
kinship, 91-94; languages, 90; mar- 
riage, 93-94; missionaries, 89-90; op- 
position to mining project, 94; role of 
men, 91, 92; role of women, 92-93; set- 
tlement, 89, 91-92; slash-and-burn 
farming, 90; social organization, 

92- 93; social status, 94; subsistence, 90 
Guizado, Jose Ramon, 35 

Gulf of Mexico, 145 

Haiti, 29, 138 

"Hanseatic State," 16 

Hapsburgs, 13 

Harvard Medical School, 30 

Havana, Cuba, 10 

Hay, John, 3, 22, 220 

Hay-Bunau-Varilla Treaty (1903), xxv, 
23, 203, 220; abrogation of, 51; amend- 
ments to, 4; "perpetuity" clause, 50; 
replacement for, 31; sovereignty issue, 
27, 203; United States rights, 3, 23, 174 

Hay-Herran Treaty (1903), 22 

Hay-Pauncefote Treaty (1901), 22 

health care, xvi, 118-20; childbirth 
deaths, 120-21; consumption, 166; dis- 
eases, 26, 82, 140; infant mortality rate, 

118- 19, 120-21, 126; life expectancy, 
xvi, 118; medical facilities, 47, 120; 
public health, 120; reforms, 47; rural, 

119- 20; sanitation facilities, 119; village 
health committees, 120-21 

Helms, Jesse, 208 

Herrera Province, 75, 102 

Hersh, Seymour, 190 

Hines, Frank T., 33-34 

Hispaniola, 7, 10 

Honduras, 138 

Hong Kong, xxvii, 147 

housing, 136; Panama Canal Commis- 
sion, 142; squatters, 107; urban slums, 
107 

Howard Air Force Base, 250 
Huertas, Esteban, 28, 220 
Hughes, Charles Evans, 28 
Hull, Cordell, 31 



325 



Panama: A Country Study 



Hull-Alfaro Treaty (1939), 31, 174; Ar- 
ticle X, 31; provisions of, 31; ratifica- 
tion of, 31-32; related conventions to, 
31; revisions to, 35 

hydroelectric power, 73, 163, 164, 165 



Illueca Sibauste, Jorge, 60, 63, 214 
IMF. See International Monetary Fund 
immigration, 79 
Immigration Department, 236 
imports, xvii, 165-67, 167 
Inca Empire, 7 

independence, xxv, 24, 25, 220; declara- 
tion of, 23 
Independent Democratic Movement, 58-59 
India, 149 

Indian tribes (see also Cuna; Guaymi), 6, 
69, 80-82; Andean, 6; Arawak, 6; 
Bokata, 81; Bribri, 81; Carib, 6; Choco 
(Embera), 6, 81, 84; Cueva, 6; culture, 
81-94; education of, 82; Miskito, 13; 
population, 80-81; Talamanca, 81; 
Terraba, 81-82 

industry, xvii, 159-65; construction, 160, 
163-64; development, 159-60, 198; de- 
velopment constraints, 160-61; energy, 
160, 164, 164-65; expansion of, 160; 
gross domestic product, 129, 159-60; 
incentives legislation, 161; and job cre- 
ation, 162; manufacturing, 159, 160- 
62; mining, 159-60, 162-63; and Tor- 
rijos adminstration, 132 

Institute of Hydraulic Resources and 
Electrification, 165, 182 

Instituto Militar General Tomas Herrera 
(General Tomas Herrera Military In- 
stitute), 241 

Inter- American Air Forces Academy, 241 

Inter- American Development Bank, xix, 
169, 215 

Inter- American Highway. See Pan- 
American Highway 

Inter-American Peace Committee, 39 

Inter- American Treaty of Reciprocal As- 
sistance (Rio Treaty), xix, 224; Organ 
of Consultation, 40 

internal security and public order, 220, 
229, 234-36 

International Financial Center, 125, 132, 
133, 150, 151 

International Military Education and 
Training Program, 243 



International Monetary Fund (IMF), xix, 
63, 130, 189, 215; publication, 169 

International Organization of Criminal 
Police (Interpol), 235 

Interpol (International Organization of 
Criminal Police), 235 

Isla de Coiba, 253, 255 

Isla Taboga, 15, 33, 71 

Israel, 213 

Isthmian Canal Convention, 23 
Isthmian Workers' Central, 200 
Isthmus of Tehuantepec, 19 
Italy, 151, 166 



Jackson, Andrew, 19 
Jamaica, 5, 138 

Japan, 147, 206; banks, 150; canal im- 
provements, 140, 143; exports to Pan- 
ama, 167; relations with, 213 

Jefferson, Thomas, 15 

Jesuit order, 117 

Jimenez, Enrique A., 32, 34 

Johnson, Lyndon B., 40 

Joint Committee, 53-54, 244-45 

joint exercises, 244, 245-46; United States 
suspension of, xxx, 207, 209, 246 

Jose Domingo Espinal Educational 
Center, 241 

judicial system, xviii-xix, 180-81, 
250-54; appointments to, 181; courts, 
180; criminal justice, 253-54; habeas 
corpus, 251; independence of, 175; in- 
tegrity of, 220; judicial precedent, 251; 
lack of independence of, 181; legal 
code, 250-51; procedure for arrests, 
252; Public Ministry, 180-81 

junta (see also coup), 22-23, 44 

junta communal, 184 

juntas agr arias de produccion, 155 

Kellogg, Frank B., 28 

Kellogg- Alfaro Treaty (1925), 28-29 

Kennedy, John F., 37 

"Kindle Liberty" exercises, 245 

Kingston, Jamaica, 145 

Kissinger, Henry, 50 

Kissinger-Tack principles, 50 

La Chorrera, 74, 104, 106 
La Palma, 232 



326 



Index 



La Prensa, 190, 196, 202 

Labor and Agrarian Party (Partido 
Laborista Agrario — PALA), xxxvi, 42, 
58, 62; and 1984 election results, 189; 
military influence on, 196; and Na- 
tional Democratic Union, 62, 188, 194; 
and preparations for 1989 presidential 
election, xxxvi 

labor code: 1976 revisions to, 132; 1986 
revisions to, 132-33, 162; collective 
bargaining, 47, 48, 132, 139; education 
tax, 138; minimum wage, 138; and po- 
litical instability, 138; and populist al- 
liance, 47-48; reforms, 139, 190 

labor force, 137; agriculture, 137; Emer- 
gency Employment Program, 137; for- 
eign workers, xxxiv; growth, 130; job 
creation, 130, 162; treaties and Panama 
Canal, 142; unemployment in, xxvii, 
48, 136, 137 

labor movement, 199-200; general strike, 
258; lack of unity in, 198; objections to 
labor code reforms, 190; support for 
Omar Torrijos Herrera, 46, 186 

Laguna de Chiriquf, 13 

Lakas, Demetrio B., 44 

Lamb, Albert R., 239, 249 

land: distribution of, 46-47; reform, 101, 
153-56; tenure, 153; usage, 152-53 

languages, xvi, 81; English, xvi; Indian 
languages xvi, 81; Spanish, xvi, xxiv, 
81, 109, 176 

Las Tablas, 75 

Latin America, 49; Christian democratic 
parties, 196; exports to Panama, 167; 
military training, 54; recession, 127; 
United States military missions in, 
249-50 

Latin American Export Bank, xxxii 

Law 16 (1953), 88 

Law 20 (1983), 224, 238 

Law 44 (1953), 224 

Law 50 (1958), 224 

Law 95, 138 

League Assembly, 29 

League of Nations, 29 

Legislative Assembly, xviii, 61, 175, 
178-80, 214; and foreign relations, 215; 
and judicial appointments, 180, 181; 
and labor code reforms, 139; limitations 
on powers of, 178-80; requirements for 
members of, 178; resolution for expul- 
sion of United States ambassador, 209 



Legislative Palace, 62 

legislature, (see also Legislative Assembly): 

term of members of, 174-75 
Lesseps, Ferdinand de, xxiii, 3, 20, 25 
Liberal Party, 24, 36, 60, 108, 192 
Liberty International, 195 
Libra Bank International, 150 
Libya, 213 

"Lieutenants' Declaration," 257 
Ligia Elena, 234 
Lima, 11 
Linowitz, Sol, 50 

literacy rate, xvi, 41, 115, 126; Cuna, 88; 
Indian, 82 

livestock: cattle, 70, 98, 158, 159; pork 
production, 159; poultry, 159 

London School of Economics, 30 

Los Santos: independence from Spain, 
15; "miracle of," 42 

Los Santos Province, 75, 153, 159; migra- 
tion, 104, 105; population, 77, 102 
Louisiana, 246 

lower class, 110-11; Canal Zone em- 
ployees, 110; and education, 111; 
ethnic composition of, 111; self- 
employment in, 110-11; support for 
Omar Torrijos Herrera, 46-48, 185; 
unemployment in, 110-11; women in, 
111 

Luciano, "Lucky," 35 

Madden Lake, 73 
malaria, 26, 140 

Malvinas Islands. See Falkland/Malvinas 
Islands 

manufacturing, 129, 160-162; chemicals, 
160; expansion of, 105; limiting factors, 
161; in Panama City, 160 

Marina Nacional (National Navy). See 
navy 

maritime fleet, 36 

marriage, 95-96; Cuna, 85; elite, 95-96; 

Guaymf, 93-94; intermarriage, 95; 

mestizos, 95 
Marsh, Richard, 25 
Martinez, Boris, 44 
Marxists, 45 

mass media, 44, 62, 202-3; censorship, 
202-3; and legislative debates, 179; op- 
position, 200 

mass organizations, 197-201 

"Maximum Leader of the Panamanian 
Revolution," 58, 175 



327 



Panama: A Country Study 



Mayan nations, 6 
McCarney, Texas, 145 
McGrath, Marcos Gregorio, 126, 201-2 
MCP. See Popular Civic Movement 
mestizos, xvi, xxx, 14, 69, 77, 82, 97; 
diet, 98; marriage, 95; migrants, 

101- 102, 111; political power of, xxvii; 
and rural society, 97 

Mexican Military Academy, 221 
Mexican War, 18 

Mexico, 44, 45, 164; and Congress of 
Panama, 17; and Contadora peace 
process, 211-12; as "Core Four" medi- 
ator, 174, 258; energy production, 164; 
exports from, 167; gross national 
product, 125; Institutional Revolution- 
ary Party (Partido Revolucionario 
Institucional — PRI), 45, 194; labor 
costs, 138; military training in, 222; 
union with, 16 

Mexico City, 11 

Miami, xxx, 145, 147 

middle class: and bachillerato , 116; ethnic 
groups in, 109-10; and military 
officers, 238; political activism of, 110; 
rural society, 101; social mobility of, 
110; support for Omar Torrijos Her- 
rera, 185, 186; women, 110 

migrants: age, 106; internal, 102; serv- 
ice employment, 105 

migration, 70, 102-6; components, 105; 
Greater Panama City, 104; patterns, 

102- 5; rate, 105; rural-urban, 106; 
urban-rural, 105-6 

military aid: from United States, 55, 56, 
221, 224, 243-44; United States sus- 
pension of, xxx, 191, 206, 209 

Military Assistance Program, 234 

Military Engineering Battalion (Batallon 
de Ingenena Militar), 232 

Military Health Battalion (Batallon de 
Salud Militar), 232 

Military Police Battalion (Batallon de 
Policia Militar), 232 

Military Training Center (Centro de In- 
struction Militar— CIM), 237, 239, 
241 

military zones, 225, 228-29 

mining, 162-63; copper deposits, 140, 
148, 162; gross domestic product, 162 

Ministry of Government and Justice, 
219, 235, 255; Indigenous Policy Sec- 
tion, 82 



Ministry of Health, 77, 118, 119, 120 
Ministry of Public Works, 119 
"Minuteman II" exercises, 246 
"miracle of Los Santos," 42 
Miraflores Locks, 26, 140, 244 
Miranda, Francisco, 15, 16 
missionaries, 81, 87, 88, 89-90 
Missouri, 246 

MLAT. See Mutual Legal Assistance 
Treaty 

Model Jail (Carcel Modelo), 255-56 
mo las, 25 

MOLIRENA. See National Liberal 
Republican Movement 

money laundering, xxx, 150-51, 208, 
220, 248 

Monge, Luis Alberto, 211 

Monroe Doctrine, 17, 20, 29 

Montevideo, 29 

Morgan, Henry, 12 

Moscow, 200 

Mount Tacarcuna, 6 

Movimiento Civilista Popular (MCP). See 
Popular Civic Movement 

Movimiento Liberal Republicano (MOLI- 
RENA). See National Liberal Repub- 
lican Movement 

Municipal Council, 184 

Mutual Legal Assistance Treaty (MLAT), 
151 

Mutual Security Act, 221 

Nahuatlan, 6 

Nargana, 25 

"narcodollars," 150 

narcotics. See drug trafficking 

National Agricultural and Livestock 
Producers, 198 

National Assembly, 32, 37, 44, 58, 238; 
Kellogg- Alfaro Treaty, 29; Marcos 
Aurelio Robles impeachment proceed- 
ings, 43; and police training, 239; Rio 
Hato base, 35 

National Assembly of Municipal Repre- 
sentatives, 46, 175, 185 

National Bank of Panama (Banco Na- 
cional de Panama— BNP), 133, 150, 
182 

National Banking Commission, 133 
National Board of Vote Examiners, 63 
National Civic Crusade (Cruzada Civi- 
lista Nacional — CCN), xix, xxix, 



328 



Index 



xxxiii, xxxvi, 190-91, 201; and labor 
unions, 200; military dominance, 199; 
protests by, 198; and Roman Catholic 
Church, 202; social composition of, 
xxxi, xxxiv 

National Civilian Coordinating Commit- 
tee (Coordinador Civilista Nacional — 
COCINA), 252 

National Council of Organized Workers 
(Consejo Nacional de Trabajadores 
Organisados— CONATO), 200, 258 

National Democratic Union (Union Na- 
cional Democratica— UNADE), 62, 
188, 194, 195, 196 

National Department of Investigations 
(Departamento Nacional de Investiga- 
ciones — DENI), xx, 234, 235, 252 

National Federation of Associations and 
Organizations of Public Employees 
(Federation Nacional de Asociaciones 
y Sindicatos de Empleados Publicos — 
FENASEP), 200 

National Free Enterprise Council (Con- 
sejo Nacional de la Empresa Privada — 
CONEP), 198, 199, 215 

National Guard (Guardia Nacional) (see 
also Panama Defense Forces), xix, xx, 
175; antagonism toward students, 186; 
and composition of cabinet, 189; cor- 
ruption of, 48; and coup of 1968, xxvii, 
43-44, 257; and the economy, 131, 
248; General Staff, 235; and Manuel 
Antonio Noriega Moreno, 61; and 
Marcos Aurelio Robles, 43; members, 
131; and military zones, 228; and 
murder of Hugo Spadafora, 189; na- 
tionalist sentiment against, 185; officer 
corps, 221-23; and Omar Torrijos 
Herrera, 108; within the Panama 
Defense Forces, 225, 236-37; political 
role of, xxvii, xxviii, 4, 43, 44, 45, 60, 
61, 219, 221-24, 246-47; in post- 
Torrijos era, 59, 187; riot control, 43; 
and social mobility, 80, 111 

National Guard School (Escuela de For- 
mation de Guardias Nacionales), 239 

National Institute, 116, 221 

National Legislative Council, 59, 175 

National Liberal Party (Partido Liberal 
Nacional— PLN), 36; and 1964 elec- 
tions, 41; and 1968 elections, 42; and 
1980 elections, 187; and 1984 elections, 
189; and 1989 presidential election, 



xxxvi; and ban on political parties, 194; 
and National Democratic Union, 62, 
188, 194; and National Opposition 
Front, 58; and National Opposition 
Union, 37; splits in, 194-95 

National Liberal Republican Movement 
(Movimiento Liberal Republicano 
Nacional— MOLIRENA), xxxvi, 
xxxvii, 62, 188, 189, 196 

National Liberation Coalition (Coalicion 
de Liberation Nacional — COLINA), 
xxxvi, xxxvii 

National Navy (Marina Nacional). See 
navy 

National Opposition Alliance (Alianza 
Nacional de Oposicion), 41 

National Opposition Front (Frente Na- 
cional de Oposicion— FRENO), 58, 59 

National Opposition Union, 37, 41 

National Patriotic Coalition (Coalicion 
Patriotica Nacional— CPN), 34, 35, 37, 
41, 192 

National Police (see also National Guard); 
clash with students, 34; ouster of 
Arnulfo Arias Madrid, 175; and penal 
system, 255; political role of, 192; and 
renters' strike, 249; replacement of 
army by, 28 

National Secret Police, 235 

national security, 257 

National Security Council, 227 

National Tourism Council (Consejo Na- 
cional de Turismo), 151 

National Union of Construction and 
Related Workers, 200 

National Union of Small and Medium 
Enterprises, 198 

National Water and Sewage Institute, 119 

National Workers' Central, 200 

nationalism, xxv, 4, 40, 45, 185, 186, 197 

Naval Support Facility, 241 

navy, 219, 233-34 

Nazi activities, 249 

Nazism, 32 

Nentzen Franco, Luis Q. , 44 

Nest of Eagles (Nido de Aguilas), 116 

Netherlands Antilles, 151 

Neutrality Treaty. See Treaty Concern- 
ing the Permanent Neutrality and 
Operation of the Panama Canal 

New Granada, 14, 15 

New Panama Movement, 44-45 

New York, 150 



329 



Panama: A Country Study 



New York Times, 190, 248, 257 
Nicaragua, xxx, 21; civil conflict, 203; 
Cuban influence in, 210; energy pro- 
duction, 164; illegal immigration from, 
258; United States occupation of, 29 
Nicaraguan civil conflict (1978-79), 210, 
211 

Nicosia Perez, Hildebrando, xxxvi, xxxvii 

Nido de Aguilas (Nest of Eagles), 116 

Nixon, Richard M., 50 

Nombre de Dios, 9, 10 

Nonaligned Movement, xix, 208, 214 

Noriega Moreno, Manuel Antonio {see 
also Panama Defense Forces), 195; al- 
leged plot against, 211; and Central 
America, 258-59; charges against, 190, 
202; Cuban support for, 212; and 
domestic violence, 258; and drug 
trafficking, 64, 252; and foreign rela- 
tions, 215; and illegal arms dealing, 64; 
military support for, 191; and National 
Guard, xxviii, 60; Nicaraguan support 
for, 210; and ouster of Nicolas Ardito 
Barletta Vallarino, 64, 173, 189; and 
ouster of Ricardo de la Espriella, 63; 
and Panama Defense Forces, 224, 228, 
237, 239; and political crisis, xix, xxix- 
xxxviii, 173; power of, 173, 196; pro- 
tests against, 173; rise to power of, 
61-62, 187 

Northville Industries, 145 

Nunez, Rafael, 21 



OAS. See Organization of American 
States 

Obaldia, Jose D., 234 

oil pipeline. See trans-isthmian oil pipeline 

oil refinery, 164, 165 

Old Panama. See Panama Viejo 

oligarchy {see also elite), xxv, 4, 36, 45; 
political power of, xxvii; and private- 
sector interest groups, 197-98 

Olokkuppilele, 6 

Omar Torrijos Military Base, 241; enlist- 
ment at, 237; infantry units at, 231; 
military training at, 243; 193d Infan- 
try Brigade, 250; and "Donoso 86" ex- 
ercise, 246; and "Kindle Liberty" 
exercises, 245 

"Operation Caribbean," 244 

"Operation Pisces," 248 



opposition, xxx; and the Legislative As- 
sembly, 179; National Civic Crusade, 
199; political parties, 184, 191; weak- 
nesses in, xxxiii-xxxiv 

Organization of American States (OAS), 
xix, xxxvi, 39, 50, 210, 214, 224 

Ortega, Daniel, 210 



Pacific Ocean, xxiii, xxv, 71 
padrinos, 96 

PALA. See Labor and Agrarian Party 
Pan-American Highway (Inter-American 

Highway), xviii, 106, 144, 152, 211, 

213, 235 

Pana-Jungla School (Escuela Pana- 
Jungla), 243 

"Panadollars," xxxii-xxxiii 

Panama Canal {see also Canal Zone), xv, 
xxiii, xxxv, 102; administrator, 141; al- 
ternatives to, 143-44, 206, 213; "canal 
operating area," 53; Canal Zone assets, 
141; construction of, xxiii, 25-26, 140; 
defense of, xxvi, 52, 207, 219, 225, 
244-46; economic effects of, xxiii-xxv; 
effect of, on population, xxiii; entrances 
to, xviii; French attempt to build, 
19-20; gross domestic product, 140; 
improvements to, 143-44; operation, 
140; Panamanian labor, 141; and 
Panamanian-United States relations, 

xxv, 203-7; possible alternatives to, 
206; revenues, 143; tolls, 48-49, 53, 
141, 142, 143; and trade, 49, 139-40, 
142-43; traffic, 48-49, 127, 142-143 

Panama Canal Commission, xxv, xxvi, 
xxxii, xxxvii, 52, 53, 63, 141, 142, 
204-6 

Panama Canal Company, 51, 52, 79 
Panama Canal Consultative Committee, 

52 

Panama Canal treaties (1977), xix, xxv- 

xxvi, 51-57, 174, 203-7, 237; annuity, 
52, 141; associated executive agree- 
ments, 53; benefits, 141; and canal 
defense, 224, 244, 245; economic im- 
plications of, 141-42; issues, 50; and 
military aid, 243-44; national plebiscite 
on, 186; and national security, 219; op- 
position to, 56, 57, 59, 201; Pana- 
manian criticism of, 57; and political 
reform, 58; principles for, 50; and re- 
lations with the United States, xxxvii, 



330 



Index 



204-7; Statement of Understanding, 
55-56; United States military obliga- 
tions under, 50, 250; United States 
Senate amendments to, 186 

Panama Canal Treaty, xxv, xxvi, 51-57; 
Agreement in Implementation of Arti- 
cle IV, 245; Article III, 53-54; Article 
IV, 52, 53-54; Article X, 52; Article 
XII, 52, 206; Article XIII, 52-53, 56; 
Combined Board, 52, 245; Coordinat- 
ing Committee, 53; Joint Committee, 
53-54, 245; modifications to, 56 

Panama Canal Zone. See Canal Zone 

Panama City, xv, xxiv, 46, 71, 77, 98, 
103, 127, 144; bishopric, 14; canal 
traffic, 127; cavalry unit in, 232; elite, 
185, 192; health care, 120, 160; hous- 
ing, 163-64; independence from Spain, 
15-16; infantry units near, 231; Lib- 
eral revolt, 21, 25; manufacturing, 160; 
migration, 104, 106; National Depart- 
ment of Investigations activity in, 235; 
night courts, 254; and the Panama 
Canal, xxv; police, 221, 234; popula- 
tion, 10, 106-7; prison in, 255; rent 
riots, 28; renters' strike in, 249; sign- 
ing of Panama Canal Treaty in, 57; 
trade, 11; transportation systems, xviii, 
31, 144-45; United States rights, 23 

Panama Defense Forces (Fuerzas de 
Defensa de Panama — FDP) {see also air 
force; armed forces; Ground Forces for 
Defense and National Security; Na- 
tional Guard; navy; police), xviii, xix, 
xx, xxvii, 222; accusations of corrup- 
tion in, xxix; air force, 233; arrest by, 
of Roberto Diaz Herrera, 202; arrest 
by, of United States personnel, 191; 
cavalry, 231-32; and civilian popula- 
tion, 197; commander of, 177; and 
composition of the cabinet, 177; corrup- 
tion in, xxxv, 197, 220, 248; and crimi- 
nal justice system, 254; criticism of, 
190, 196, 197, 252; and defense of the 
Panama Canal, 257-58; and domestic 
rioting, 258; domination of political sys- 
tem, 175, 196-97; and the economy, 
131-32, 248; and the Electoral 
Tribunal, 182; equipment, 231; and 
foreign relations, 215; functions, 
224-25; General Staff, 227, 233; 
Ground Forces, 229-32; infantry units, 
231; and internal threats to security, 



220, 257-58; lack of ministry jurisdic- 
tion over, 178; leftist leanings, xxxv; 
military zones, 228-29; navy, 233-34; 
organization, 219, 225-27; and ouster 
of Arnulfo Arias Madrid, 175; and 
ouster of Nicolas Ardito Barletta 
Vallarino, 173; political role of, xxvii, 
xxviii-xxix, 5, 61, 175, 198, 221, 
247-48, 257; power of, xxviii, 196, 
196-97, 197; power struggle within, 
190; promotions, 237-38; protests over 
government role of, 173; ranks, 238- 
39; role in government, 179; role of 
commander in chief, 225-27; social 
composition of, 238; and social mobil- 
ity, 80, 111; Spadafora affair, 64, 252; 
staffing of penal system, 255; Strategic 
Military Council, xxxiv; student oppo- 
sition to, 201; support for Noriega, 
xxxii; training, 237, 238, 239-43; 
transformation of National Guard into, 
xxviii, 221-24; uniforms and insignia, 
239; United States demand for inves- 
tigation of, 209-10; violence of, against 
opposition, xxxii, 199; women in, 238 

Panama Province, 16, 74, 104, 121; and 
crime, 256; gross domestic product, 
131; land distribution, 155; migration, 
104; population, 102 

Panama Railroad Company, 18, 20, 22, 

Panama Star and Herald, 203 

Panama Viejo (Old Panama), 229, 231 

Panamanian Air Force (Fuerza Aerea 
Panamena). See air force 

Panamanian Banking Association, 198 

Panamanian Business Executives Associ- 
ation, 198-99 

Panamanian Family Planning Organiza- 
tion, 77 

Panamanian flag, 23; in Canal Zone, 36, 
37, 38 

Panamanian Tourism Institute, 151 
Panamenismo, 32 

Panamenista Party (Partido Paname- 
nista— PP), 41, 42, 187, 192, 195; and 
National Democratic Union, 188, 194 

Panquiaco, 234 

PAPO. See Popular Action Party 
Paredes, Ruben Dario, 60, 61, 63, 187, 
188 

Paris Club, 169 

Partido de Action Popular (PAPO). See 
Popular Action Party 



331 



Panama: A Country Study 



Partido del Pueblo (PdP). See People's 
Party 

Partido Democrato Cristiano (PDC). See 
Christian Democratic Party 

Partido Laborista Agrario (PALA). See 
Labor and Agrarian Party 

Partido Liberal Autentico (PLA). See 
Authentic Liberal Party 

Partido Liberal Nacional (PLN). See Na- 
tional Liberal Party 

Partido Nacionalista Popular (PNP). See 
Popular Nationalist Party 

Partido Panamehista (PP). See Pan- 
amefiista Party 

Partido Panamenista Autentico (PPA). See 
Authentic Panamenista Party 

Partido Republicano (PR). See Republi- 
can Party 

Partido Revolucionario Democratico 
(PRD). See Democratic Revolutionary 
Party 

Partido Social Democratico (PSD). See So- 
cial Democratic Party 

Patterson, William, 12 

PDC. See Christian Democratic Party 

PdP. See People's Party 

Peace Battalion, 228, 232; and border 
defense, 258; and "Candela 87" exer- 
cise, 246; and "Kindle Liberty" exer- 
cises, 245 

peasants, 104; employment, 100; income, 
100; migrants, 106; migration of, 104; 
rioting, 43 

"Pedrarias the Cruel. ' ' See Arias de Avila, 
Pedro 

Pedro Miguel Locks, 26, 140 
Pedro Prestan Battalion, 232 
penal system, 254-56; prison conditions, 

255-56; and women, 255, 256; and 

youth, 255 
Peninsula de Las Palmas, 75 
peninsulares, 14, 16 

Penitentiary Guard (Guardia Peniten- 

ciaria), 236 
Penonome, 75 

People's Party (Partido del Pueblo — 

PdP), 46, 185, 194, 200 
Permanent Legislative Commission, 235 
Personal General Staff, 228 
personalismo (personalism), xix, 184 
Peru, 45; Congress of Panama, 17; mili- 
tary academies, 224; military high school 
model, 241; proposed union with, 16 



Petroterminales de Panama, 145 
Philip II (Spain), 9 
Philip III (Spain), 11 
Pinilla, Jose Maria, 43 
Pinilla junta, 44 
Pinogana District, 103 
pipeline, xviii, 125, 136, 140, 142, 145, 
163 

Pittman, Key, 32 

Pizarro, Francisco, 7 

playeros (ethnic groups), 79 

PLA. See Authentic Liberal Party 

PLN. See National Liberal Party 

PNP. See Popular Nationalist Party 

Poland, 214 

police, xx, 28, 34, 219, 220-21, 234-36, 
249, 255; brutality, xxix; cavalry unit, 
231; and internal security, 229; mili- 
tary control of, 197; political role of, 
247; secret police, 234-35; Traffic 
Police, 235; training, 239, 242-43 

Police Forces (Fuerzas de Policfa). See 
police 

Police School (Escuela de Policfa), 239 
Police Training Academy (Academfa de 

Capacitacion Policial — ACAPOL), 

239, 242-43 
Policfa Comunitaria (Community Police), 

236 

Policfa de Turismo (Tourism Police), 236 

political parties (see also names of political 
parties) xix, 24, 192-96; and 1984 elec- 
tions, 61-63, 175, 187; banning of, 
185, 194; coalitions, xxxvi-xxxvii, 62, 
187-88; deceptive labels of, 42; inabil- 
ity of, to control military, 198; legal sta- 
tus for, 57-58, 187; Marxist, 194; re- 
emergence of, 186 

Popular Action Party (Partido de Accion 
Popular— PAPO), xxxvi, 188, 196 

Popular Civic Movement (Movimiento 
Civilista Popular — MCP), xxxv 

Popular Nationalist Party (Partido Na- 
cionalista Popular— PNP), 188 

population, xv-xvi, 69; birth rate, 77, 
104, 137; census (1911), 75, 102; con- 
centration and the Panama Canal, 
xxiv-xxv; Cuna, 82, 84; death rate, 77; 
distribution, 74-75; growth, 75-77, 
104, 130; Indians, 6, 80-81; mortality 
rate, 137; rural-urban, 131; size, 75; 
working-age, 137 

Port Guard (Guardia Portuaria), 236 



332 



Index 



Portobelo, 7, 11, 15; feria, 11, 13, 14 
ports, xviii, 71, 141, 145; and economy, 

126; facilities, 71; ownership and 

operation, 141-42; transshipment 

centers, 145 
Portsmouth (England), 234 
post-Torrijos era: political developments, 

59-64, 187-91; power struggle, 192 
PP. See Panamenista Party 
PPA. See Authentic Panamenista Party 
PR. See Republican Party 
PRD. See Democratic Revolutionary Party 
Preparative Committee on the Panama 

Canal Alternatives Study, 206 
presidency: requirements for, 177; term 

of, 174-75, 175 
Presidente Porras, 234 
Presidential Guard (Guardia Presiden- 

cial), 236 

press, 36, 210; attacks on United States, 
209; censorship, 202-3; drug traffick- 
ing reports in, 220; foreign, 190, 203, 
211; newspapers, 144, 190, 196, 202; 
opposition, 196, 200 

private-sector interest groups, 197-99 

privatization, 133 

Protestants, xvi, xxiv, 69, 77, 79, 80, 81, 

87, 88, 89-90, 112 
Provincial Council, 183 
PSD. See Social Democratic Party 
public employment, 181, 183, 198 
Public Law 96-70, 204-6 
Public Ministry, xix, 180-81, 235, 251 
Public Order Company (Compama de 

Orden Publico), 229 
public works: Torrijos era, 47-48 
Puerto Armuelles, xviii 
Puerto Bello (see also Portobelo), 7 
Puerto Rico, 246 

Quarry Heights, 250 

rabiblancos (white tails), 184-85 
Radio Mundial, 190 
radio stations, 144 

Railroad Guard (Guardia Ferroviaria), 
236 

railroads, xviii, 97, 144 
rainfall, xvi, 152 
Reagan, Ronald, 208 
reducciones , 89 
Reform Acts of 1978, 174 



regions, 74-75; Atlantic Panama, 75; 
Central Isthmus, 74; Central Panama, 
75; Chiriqui Province, 75; Darien, 74 

religion (see also Roman Catholic Church), 
112-14; Baptist, 87; Christianity, 9; 
and the Constitution, 112; female par- 
ticipation in, 114; folk beliefs, 112-14; 
and higher education, 117; male par- 
ticipation in, 114; Methodist, 90; Pro- 
testant, xvi, xxiv, 69, 77, 79, 80, 81, 
87, 88, 89-90, 112; Protestant mission- 
aries, 81, 87, 89; rites of, 114; Seventh 
Day Adventist, 82, 90 

Remon, Jose Antonio; death of, 34; and 
the National Guard, 34, 221, 239; or- 
ganization of National Patriotic Coali- 
tion, 34; posthumous promotion of, 
238; revisions to Hull-Alfaro Treaty, 35 

Republic of Panama (Republica de Pan- 
ama), xv 

Republican Party, xxxvi, 58, 62, 195; and 
1984 election results, 189; and National 
Democratic Union, 188, 194; and 
preparations for 1989 presidential elec- 
tion, xxxvi 

Rio Atrato, Colombia, 6 

Rio Calovebora, 81 

Rio Chagres, 26, 73, 140 

Rio Chepo, 73 

Rio Chiriqui, 165 

Rio Hato, 33, 231, 237, 241 

Rio Sereno, 232 

Rio Teribe, 81, 243 

Rio Tinto-Zinc, 162 

Rio Treaty. See Inter- American Treaty of 
Reciprocal Assistance 

Rio Tuira, 13, 71 

riots, 36, 37, 38-40, 50, 62, 192; Panama 
City, 43 

roads, xviii, 31, 103, 106, 144, 152 

Robinson, Charlie, 25 

Robles, Marcos Aurelio, 40, 42, 43 

Rodman Naval Base, 250 

Rodriguez, Carlos Francisco, 188 

Roman Catholic Church, xvi, xxiv, 
201-2; children in, 114; Colombia civil 
strife, 20-21; criticism of government, 
191; Franciscan order, 9; Jesuit order, 
117; missionaries, 87, 89; and National 
Civic Crusade, 202; religious rites, 114; 
role in colonial government, 14; short- 
age of priests in, 112 

Roman law, 251 



333 



Panama: A Country Study 



Roosevelt, Franklin D., 29, 30, 31 
Roosevelt, Theodore, 3, 22, 23 
Roosevelt Corollary, 29 
Ropp, Steve, 196 

Royo, Aristides, xxviii, 58, 59-60, 186 
rural society, 97-102; agricultural pro- 
duction, 97-98; cash crops problems, 
99-100; cattle ranching, 99; education, 
100, 101; elite, 101 ; employment, 100; 
farms, 98, 99; income, 100; land avail- 
ability, 99, 100; land reform, 101; 
middle class, 101; migrants, 101-2; 
peasants, 97, 98, 100; slash-and-burn 
agriculture, 97, 98, 99, 100; and sugar- 
cane, 99-100; tropical forest, 98-99; 
women, 100 



Samudio, David, 42, 43 
San Bias, 12 

San Bias Islands, 3, 25, 71; Cuna popu- 
lation, 82, 84 
San Jose Agreement (1980), 164 
San Martin, Jose de, 16 
San Miguelito, 46 
Sandinista government, xxx 
Sandinista guerrillas, 210, 211 
Sanjur, Amado, 44 
Santa Barbara, California, 145 
Santiago, 75, 106 
Santo Domingo, Hispaniola, 10 
Sanwana Bank, 150 
Saudi Arabia, 164 

School for Women's Training (Escuela de 
Formation Feminina), 238 

School of Nursing, 117 

Second Infantry Company, 231 

Security Pacific, 150 

Serrania de Tabasara, 71 

services sector, xvii, xxvii, 144-51, 164; 
expansion of, 105; gross domestic pro- 
duct, 129, 144; income, 168; migrants, 
105; Torrijos administration, 132 

Seventh Infantry Company, 231 

Seventh Inter-American Conference, 29 

Seville, 13 

Shaler Triangle, 39 

Sieiro Murgas, Ramon, xxxvi, 195 

Sierra de Veraguas, 71 

silver, 1 1 

Silvera, Ramiro, 44 

Sixth Infantry Company, 231 

slave trade, 1 1 



slavery: African slaves, 3, 9, 10, 13, 14, 
17; Indian slaves, 3, 9, 14 

Small Craft Instruction and Training 
School, 241 

Social Democratic Party (Partido Social 
Democratico— PSD), 58 

social security, 121, 126, 133, 136; wel- 
fare, 134, 136 

Social Security Institute, 118, 121 

Socialist International, 194 

society, xvi, 69-70, 77-111; class distinc- 
tions, xxxiii-xxxiv, 69; class structure, 
69; elite, xxv, 108-9; elite family 
names, 108; ethnicity, 69; family and 
kin, 94-97; kinship, 94-97; lower class, 
5, 40, 110-11; middle class, 4-5, 26, 
40, 109-10; migrants, 102-6; migra- 
tion, 70; oligarchy, 4, 24, 40, 108; and 
the Panama Canal, xxiii-xxiv; rural, 
97-102, 107-8; segregation in, 26; un- 
derclass, 14; urban, 106-8 

SOFA. See Status-of-Forces Agreement 

Solfs Palma, Manuel, xxxi 

Somoza, Anastasio, 210 

South America, 207, 224, 241 

SOUTHCOM. See United States 
Southern Command 

Soviet Union, 213, 214 

Spadafora, Hugo, xxix, 64, 173, 181, 
189, 190, 202, 208, 211, 252 

Spain, 9, 13 

Spanish-American War, 22 

Spanish colonies confederation, 16-17 

Spanish Empire, xxiii, 3, 251 

Spanish Main, 1 1 

Special General Staff, 228 

Spooner Bill of June 29, 1902, 22 

Status-of-Forces Agreement (SOFA), 250 

Stevenson, Adlai E., 39 

stock exchange, 133 

Strategic Military Council, xxxiv 

strikes, xxxii, 189, 190, 191, 200 

students, 46, 50; antagonism toward Na- 
tional Guard, 186; anti-American 
demonstrations, 50, 200, 201; and for- 
eign relations, 215; groups, 200-1; pro- 
test of 1977 canal treaties, 56; support 
by, of Omar Torrijos Herrera, 46, 185 

subcultures. See ethnic groups 

subsistence farming, 74, 104, 127, 153 

Sucre, Arturo, 44 

Suez Canal, xxiii, 36 

sugar, 99-100, 130, 158, 166; quota, 210 



334 



Index 



Sumimoto Bank, 150 
Superior Center for Bilingual Secretaries, 
117 

supertankers, 143 

suplentes (substitutes), 183 

Supreme Court, xviii, 177, 183, 254; im- 
peachment proceedings, 43; require- 
ments for appointment to, 180 

Switzerland, 148, 151 



Taboga, 15, 33, 71 

Tack, Juan Antonio, 50 

Taft, William Howard, 27 

Taiwan, 147, 213 

Talamamca, 81 

Tampa, xxx 

tax base, 134 

tax reform (1964), 135 

taxes; on banana exports, 156; direct, 

134, 135; on imports, 166 
Technical University, 117 
telephones, 144 
television, 144 
Terraba, 81-82 
Texas, 145, 246 
Third Infantry Company, 231 
Third Nationalist Party, 58 
Tinajitas, 231, 232 

Tlatelolco Treaty. See Treaty for the Pro- 
hibition of Nuclear Weapons in Latin 
America 

Tocumen, 106 

Tocumen International Airport (General 
Omar Torrijos Herrera International 
Airport), xviii, 144-45, 231 

Torrijismo, xxvii, 184 

Torrijos Herrera, Omar: accomplish- 
ments of, 174; administration of, 
xxvii-xxviii, 45-48; and air force, 233; 
appointments by, 248; and Central 
America, 210, 211; and Constitution of 
1972, 175; corruption of administra- 
tion, 48; and coup of 1968, 43-44, 185, 
219, 257; and Cuba, 212; and Cuna, 
88; death of, 59, 173; and Democratic 
Revolutionary Party, xxxii, 45, 186, 
194; "democratization," 57; economic 
policies of, 48, 125-26, 129, 132, 139, 
168; educational reforms, 47; Emer- 
gency Employment Program, 137; and 
foreign relations, 215; health care re- 
forms, 47; and labor unions, 199; land 



reform, 132; mass media, 202; and 
military rule, 196; and military train- 
ing, 241; and the National Guard, 108, 
222, 247; Neutrality Treaty, 55-56; 
and the oligarchy, 45; and Panama 
Canal, 185; and Panama Canal 
treaties, 5, 48-57, 186; and Panama 
Defense Forces, 111, 173, 192, 197; po- 
litical dominance of, 184-86; and po- 
litical system, 58; popularity of, 5; 
populist alliance, 45-46, 47, 48, 57, 
185, 186; power of, xix, 44; presiden- 
tial candidacy of, 58; public works ef- 
forts, 47-48; rise of, to power, 44; and 
Roman Catholic Church, 201; State- 
ment of Understanding, 55; and stu- 
dent groups, 201; and urban housing, 
107 

tourism, 127, 132, 134, 151 

Tourism Police (Policfa de Turismo), 236 

trade, 49, 144, 203; colonial period, 

10-11, 13; index, 166 
Traffic Police (Direccion Nacional de 

Transito Terrestre), 235-36 
Trans-Isthmian Highway, xviii, 31, 103, 

106, 144 

trans-isthmian oil pipeline, xviii, 125, 
136, 140, 142, 145, 163; gross domes- 
tic product, 145 

trans-isthmian railroad, 97, 126 

Transport Battalion (Batallon de Trans- 
pose y Mantenimiento), 232 

transportation, 129, 144, 235; airports, 
xviii, 144; pipeline, xviii, 125, 136, 
140, 142, 145, 163; ports, xviii, 97, 
144; railroads, xviii, 97, 144; roads, 
xviii, 31, 103, 104, 106, 144, 152; Tor- 
rijos administration, 47-48 

Treaty Concerning the Permanent Neu- 
trality and Operation of the Panama 
Canal (Neutrality Treaty), xxvi, 53, 
244; Article VI, 53; DeConcini Condi- 
tion, 56; modifications to, 56; protocol 
to, 53; Statement of Understanding, 
55; United States Senate approval of, 
56 

Treaty for the Prohibition of Nuclear 

Weapons in Latin America (Tlatelolco 

Treaty), xix, 224 
Treaty of Mutual Understanding and 

Cooperation, 35 
Treaty of Union, League, and Perpetual 

Confederation, 17 



335 



Panama: A Country Study 



Treaty of Utrecht, 13 
Tribunal Tutelar de Menores. See Guardi- 
anship Court for Minors 
Turkey, 151 

Turks and Caicos Islands, 151 
Twelfth Military Zone, 229, 235 

UN. See United Nations 

UNADE. See National Democratic Union 

Union Club of Panama City, 30 

Union Nacional Democratica (UNADE). 
See National Democratic Union 

United Brands, 156, 158 

United Fruit Company, 156 

United Nations (UN), xix, 189; Confer- 
ence on Trade and Development, 214; 
General Assembly, 214; Security 
Council, 39, 49, 214 

United States, 126, 212, 213; abrogation 
of right of intervention, 174; alleged 
plot of, against Noriega, 211; annuity 
for Panama Canal, 31, 35, 40, 52-53, 
140, 141; arrest of personnel of, xxx, 
191, 209; attack on embassy of, 209; 
bilateral military treaties with, xx; 
California gold rush, 18, 126; call for 
democracy in Panama, xxx; canal im- 
provements, 140, 143; Canal Zone dis- 
putes with Panama, 24; Canal Zone 
interests, 28, 29; construction of Pan- 
ama Canal, xxiii, 25-26, 140; and cor- 
ruption in Panama, xxxv, 190, 257, 
258; criticism by, of domestic problems, 
190; criticism of, 214; demonstrations 
against, 36-37, 209; disputes with, 215; 
draft treaty with (1942), 33-34; drug 
investigations, 248; economic aid from, 
38, 55, 56; economic sanctions by, 
xxxi-xxxiv; education of elite in, 109; 
employee benefits, 204-5; as employ- 
er, 198; exports from, 167; flag tear- 
ing and trampling, 36; and French 
canal company, 23; indictment by, of 
Manuel Antonio Noriega Moreno, xxx; 
intervention in Panamanian civil life, 
22, 27-28; joint defense of Panama 
Canal, 52, 219, 225, 244-46; joint ex- 
ercises with, 244, 245-46; jurisdiction 
in Canal Zone, 49, 53; leases for bases 
and sites, 32-33; military aid from, 55, 
56, 221, 224, 243-44; military bases in 
Panama, 206-7; military intervention 



by, 229; military presence of, 248-50; 
and military training, 241; national 
guard units, 246; nationalist sentiment 
against, 30, 58, 185; operation of Pan- 
ama Canal, 52, 140; opposition to 
ouster of Nicolas Ardito Barletta 
Vallarino, 189; and Panama Canal 
treaties, xix, xxv-xxvi, 51-57, 174, 
203-7, 237; and Panama Defense 
Forces, xxviii; and Panamanian in- 
dependence, xxv, 220; Panamanian ob- 
jection to bases of, 34, 201; and 
Panamanian political system, xxvii, 
175; press, 202, 220; pressure for re- 
form, 208; proposed expulsion of am- 
bassador from, 209; reduction in aid 
from, 208; relations with, xix, xxxvi, 
xxxvii, xxxviii, 27-33, 173, 203-10, 
212; rights to Canal Zone, 30-31; 
status-of-forces agreements, 245; stu- 
dent demonstrations against, 36, 200; 
suspension of aid, xxx, 191, 206, 209; 
suspension of joint exercises xxx, 207; 
training by, in police methods, 239; 
transcontinental railroad, 18, 126; war 
games, 244 

United States Agency for International 
Development, 165, 210 

United States Air Force, 35 

United States Army: Corps of Engineers, 
26; military intervention by, 249; as or- 
ganizational model, 227, 231; School 
of the Americas, 241-42; schools, 229; 
uniforms, 239 

United States Caribbean Command, 249- 
50 

United States Central Intelligence Agency, 
208 

United States Coast Guard, 234 
United States Congress (see also United 
States House of Representatives; Unit- 
ed States Senate); economic measures 
against Panama, xxx; Panama Canal 
Act (1979), 204-6; suspension of aid, 
209; suspension of joint exercises, xxx, 
246 

United States Department of Commerce, 
162 

United States Department of Defense, 38, 
142 

United States Department of State, 208, 
258; and bases in Panama, 33-34; po- 
sition on flying of Panamanian flag, 38 



336 



Index 



United States Department of the Trea- 
sury, 150 

United States Embassy, 50; attack on, 
191; demonstration at, xxx 

United States Federal Bureau of Investi- 
gation, 235 

United States Federal Reserve System, 
125 

United States Geological Survey, 165 
United States House of Representatives, 
190 

United States Information Agency, 36 

United States National Guard, 36 

United States Navy, 234 

United States Overseas Private Invest- 
ment Corporation, 55 

United States Senate, xxvi; amendments 
to Panama Canal treaties, 56-57, 186; 
Committee on Foreign Relations, Sub- 
committee on Western Hemisphere Af- 
fairs, 190; DeConcini Condition, 56, 
207; and ratification of Panama Canal 
treaties, 207; report on treatment of 
prisoners, 252-53; resolution to inves- 
tigate accusations by Roberto Diaz 
Herrera, 191 

United States Southern Command 
(SOUTHCOM), 49, 207, 250 

United States War Department, 33-34 

University of Panama, 30, 44, 88, 116, 
117, 182, 201 

University of Santa Maria la Antigua, 
117 

Urrutia, Bolivar, 43-44 
U.S.S. Dixie, 249 
U.S.S. Nashville, 249 
U.S.S. Wisconsin, 22 

Vallarino, Bolivar, 43, 44, 221, 238 

Venezuela, 164; and Contadora peace 
process, 211-12; as "Core Four" medi- 
ator, 174, 258; exports to Panama, 167; 
gross national product, 125; military 
training, 224, 239; relations with, 213 

Vera Cruz, Mexico, 10 

Veraguas Province, 16, 75, 90, 101, 104, 
153, 155, 159; migration, 105; popu- 
lation, 102, 103, 104, 105 



vice presidency, 175; requirements for, 

177; significance of, 177-78 
Viceroyalty of New Granada, 13 
Viceroy alty of Peru, 10, 13 
Vietnam war, 130 
Volcan Baru, 73 
Volcan de Chiriqui, 73 
volcano, 73 

Vosper Thornycroft, 234 

wage policy, 138-39; Canal Zone, 142; 

minimum wage, 138 
War of a Thousand Days, 21 
War of the Spanish Succession, 13 
Washington, D.C., 204 
Watergate, 50 

Watermelon War of 1856, 18 
Welles, Sumner, 31 

West Germany. See Federal Republic of 
Germany 

West Indies, 5, 9, 79 

Western Europe, 109, 213 

women: in the armed forces, 238; cam- 
pesinos, 96; Cuna, 85, 86; employment 
of, 110; Guaymi, 92-93; lower class, 
111; and marriage, 96; migrants, 106; 
and motherhood, 96; and the penal sys- 
tem, 255, 256; and politics, 109; and 
religion, 114; in rural society, 100 

Women's Rehabilitation Center (Centro 
Feminino de Rehabilitation), 256 

World Bank, xix, 62, 130, 132, 215, 248; 
labor costs, 138; publications, 169; 
structural adjustment loans to Panama, 
132; unemployment study, 136 

World War II, 32-33; and Canal Zone, 
249; decrease in foreign workers, 
103-4; economic expansion, 103; post- 
war depression, 127 

youth {see also students); and crime, 
256-57; and the penal system, 255 

Zamudio, Martin, 7 
Zimbabwe, 208 

Zuniga, Carlos Ivan, 188, 190, 196 
Zuniga, Mauro, 252 



337 



Published Country Studies 



(Area Handbook Series) 



JJU UJ 


Afghanistan 


550-174 


Guinea 


550-98 


Al.b3.n13. 


J JU — 0<£ 


Guyana 


55O-44 


A.lgrcri3 




H nnHi ira? 
1 1 ' J i 1 <_i U. 1 ao 


550-59 


Angola 


550-165 


Hungary 


550-73 


Argentina 


550-21 


India 


^,50-1 fi9 


An r?i 1 1 tk 
rvuoli til 1 a. 


550-1 S4 


• 

Indian v^cean 


550-176 


Austria 


550-39 


Indonesia 


JJu 1 / J 


Bangladesh 


JJU uo 




^0-1 70 


Ua ryi 1 1 m 


550-31 


Iraq 


550-66 


Bolivia 


550-25 


Israel 


550-20 


Brazil 


^0-1 ft9 

JJU lOi 


Italy 


JJU 1 uo 


Bulgaria 


550-69 


Ivory Coast 


550-61 


Burma 


550-30 


Japan 


JJU JU 


C ambodia 


550-34 


Jordan 


S^fl- 1 fifi 

JJU 1 uu 


C ameroon 


JJU JU 


Kenya 


550-159 


Chad 


550-81 


Korea, North 


550-77 


Chile 


550-41 


Korea South 


■J *J \J \J\J 








550-26 


Colombia 


550-24 


Lebanon 


550-33 


Commonweal tli C aribbean , 


550-38 






Islands of the 






550-91 


Congo 


JJU OJ 




550-90 


Costa Rica 


550-172 


Malawi 


550-152 


Cuba 


55O-45 


1 vacuo. y old 


550-22 


Cyprus 


550-161 


Ivlauntania 


550-158 


Czechoslovakia 


550-79 


Mexico 


550-52 


Ecuador 


550-49 


Morocco 


550-43 


Egypt 


550-64 


Mri7smni ni 1 f* 


^50-1 50 


r 1 SaluaHnr 
1 j 1 oaivauui 


550-88 


irara cn 1 a 
lilLal agua 


550-28 


Ethiopia 


Ou\J 1 J / 




550-167 


Finland 


550-94 


Oceania 


jJU-l jj 


Germany, East 


CCA A Q 

jjU-4o 


Pakistan 


CCA (79 

DjU-I / j 


Germany, Fed. Rep. of 


C CA A C 


Panama 


ten ] C9 
j jU- 1 J j 


Ghana 


CCA 1 CC 

jjU-1 DO 


Paraguay 


CCA Q7 

J JU - o / 


Greece 


CCA 1QC 

jju-ioO 


Persian Gulf S 


550-78 


Guatemala 


550-42 


Peru 


JJU / z. 


Philippines 


550-62 


Tanzania 


JJU— 1 DZ 


r oianu 


J JU J J 


r ~V n ^ 1 1 a n H 

1 llallclllLi 


JJU- 1 o 1 


Portugal 


550-89 


Tunisia 


JJU- 1 OU 


Romania 


JJU ou 




550-51 


Saudi Arabia 


550-74 


Uganda 


C. CA 7A 
JJU - / U 


Senegal 


JJU s / 


Uru guay 


c; c; A 1 QA 
JJU - 1 ou 


Sierra Leone 


cc >n 71 

JJU / 1 


Venezuela 


C. CA 1 Q/L 

J jU- 1 o^t- 


Singapore 


550-32 


\^ietnam 


RCA 

J jU-od 


Somalia 


JJU 1 O J 


I ClllCIlo, 1 I1C 


550-93 


South Africa 


550-99 


Yugoslavia 


550-95 


Soviet Union 


550-67 


Zaire 


550-179 


Spain 


550-75 


Zambia 


550-96 


Sri Lanka 


550-171 


Zimbabwe 


550-27 


Sudan 






550-47 


Syria 







trU.S. GOVERNMENT PRINTING OFFICE: 1989 -0- 242-444 (80005) 



PIN: 004210-000 



